Brookfield scoops up controlling stake in Genworth for $2.4B
Genworth Financial Inc. (GNW.N) agreed to sell its Canadian unit to Brookfield Business Partners LP (BBU.N) for $2.4 billion as it works to win regulatory approval for its acquisition by China Oceanwide Holdings Group Co.
Brookfield Business Partners will purchase 48.9 million shares, or a 57 per cent stake, at $48.86 apiece in Genworth MI Canada Inc., giving it majority control of Canada’s largest private-sector residential mortgage insurer. That’s a 5.1 per cent discount to Genworth MI’s closing price Monday.
Genworth Financial is looking to “ultimately, moving forward with our long-awaited closing of our merger with Oceanwide,” Chief Executive Officer Tom McInerney said in a statement Tuesday. Oceanwide’s chairman Lu Zhiqiang said the company is “pleased with the quality of the buyer as well as the purchase price they have offered.”
Shares of Genworth Financial jumped as much as 16 per cent in U.S. trading Tuesday, while Genworth MI Canada traded ex-dividend in Toronto and fell slightly.
Genworth has been working since 2016 to close its US$2.7 billion buyout by China Oceanwide, a transaction McInerney called the “best option” as the Richmond-based insurer grappled with soaring costs on long-term care policies. The insurer said in July that it would seek to gauge interest in the Canadian mortgage insurance unit after lack of “any substantive progress” on talks with regulators in that country for the China Oceanwide deal.
Brookfield plans to fund about US$700 million of the purchase on its own and for some of its institutional partners to co-invest alongside it for the rest. Brookfield agreed to provide an US$850 million bridge loan to back the transaction, which is expected to close in the second half of the year. The deal is subject to approval from Canada’s minister of finance.
BFIN Securities LP, BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets, and Scotiabank were among financial advisers to Brookfield Business Partners. Goldman Sachs and Lazard Freres & Co. are acting as financial advisers to Genworth.
Genworth and Oceanwide have agreed to extend their merger deadline until Dec. 31.
“Genworth is an industry-leading business that generates strong, consistent earnings and operates in a sector with high barriers to entry,” David Nowak, managing partner, Brookfield Business Partners, said in the statement
The Genworth deal with Oceanwide has been approved by the Committee on Foreign Investment in the U.S., but is pending a decision from Canadian authorities. It also still needs clearance in China for currency conversion, according to the statement Tuesday.
The sale of the Canadian subsidiary comes at a sensitive time for Canadian-Chinese relations. The government is currently studying whether to ban Huawei Technologies Co. from its 5G networks. U.S. charges late last year against the Chinese telco saw its chief financial officer detained in Vancouver at the request of the U.S. Since then, Beijing has detained two Canadians, halted imports of canola and is now turning away meat shipments from Canada.
The sale of the remaining 43 per cent interest isn’t entirely off the table. Deal sets near term floor for shares of Genworth MI Canada
Brookfield’s step into the Canadian residential mortgage insurance business is a little unexpected. The preliminary economics of Genworth MI Canada’s business is “quite attractive.”
The deal should alleviate any near-term concerns about Genworth Financial’s holding company liquidity.
Genworth MI Canada competes with Canada Guaranty Mortgage Insurance Co. in providing mortgage insurance, alongside the federal government’s Canada Mortgage & Housing Corp. In Canada, homebuyers with less than a 20 per cent downpayment are required to get their mortgage insured through one of the three companies.
Alternative lenders have been reaping the benefits of Canada’s tighter mortgage regulations as homebuyers seek financing outside of the big banks in wake of new rules imposed last year. And home prices in big cities have remained lofty. Sales in the city of Toronto have been rebounding all summer from a slump earlier this year as housing supply remains limited, driving prices higher for most segments.
--With assistance from Aoyon Ashraf, Scott Deveau and Joshua Fineman