Here's Why Genworth Financial Tumbled 20% in February

The company's would-be acquirer was the subject to a fresh batch of negative headlines.

Lou Whiteman
Lou Whiteman
Mar 2, 2019 at 5:48PM
Financials

What happened

Shares of insurance provider Genworth Financial (NYSE:GNW) fell 20% in February, according to data from S&P Global Market Intelligence, after the company was dealt a fresh blow in its long-running saga to be acquired by a Chinese suitor.

So what

China Oceanwide Holdings in October 2016 announced plans to acquire Genworth, a one-time subsidiary of General Electric, for $2.7 billion, but regulatory hurdles have complicated matters in the years since. The proposed deal has been extended eight times so far while awaiting regulatory approval, and for much of the time since the announcement until recent months it appeared highly unlikely that the deal would close.

Two businesspeople shaking hands.

Image source: Getty Images.

The stock since 2016 has mostly traded up and down based on deal-related headlines. In late 2018 the transaction gained some positive momentum as the Delaware Department of Insurance approved the purchase and U.S. mortgage overseers approved Oceanwide's purchase of Genworth's large mortgage insurance business.

Regulators in New York and Virginia provided their own approvals in January.

That momentum disappeared in February, after China Oceanwide warned of a substantial drop of profits in 2018 and the auditor for its Hong Kong unit, PricewaterhouseCoopers, resigned. Genworth also reported mixed fourth quarter results, and while the companies have won a number of approvals of late, numerous other regulatory clearances are still required.

Check out the latest earnings call transcript for Genworth Financial.


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Now what

As long as the merger agreement hovers over Genworth, this is more of a speculative play than an investment. Shares of Genworth closed March 1 at $3.84 apiece, nearly 30% below the proposed $5.43 per share buyout price. That's a nice payday should Oceanwide ever win final approval to acquire Genworth.

Oceanwide Chairman Lu Zhiqiang on Jan. 30 said that "we remain committed to the transaction" as the two companies agreed for an eighth time to extend the agreement. Just beware that shares of Genworth fell below $3 apiece in early 2018, when the acquisition was viewed as unlikely to close. It's possible they return to those levels if the sale eventually falls through.