Shares of Genworth Financial (NYSE:GNW) traded up 11% in August, according to data provided by S&P Global Market Intelligence, a rare winner in what was a down month for many other insurance and bank stocks. Genworth right now is trading not based on interest rates or the perceived health of the economy but rather on the prospects of completing its long-stalled takeover, and in August the company got good news on that front.
In October 2016, China Oceanwide Holdings 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 12 times so far while awaiting regulatory approval, with the latest extension announced Tuesday.
One of the hurdles to completing the Oceanwide deal was Canadian regulatory authorities. Genworth in August moved to eliminate that complication, announcing the sale of its majority stake in Genworth MI Canada to Brookfield Business Partners for 2.4 billion Canadian dollars ($1.8 billion). In a statement announcing the move, Genworth said that even if the Oceanwide transaction is not consummated, the sale of the Canada operation would give it increased financial flexibility.
"We are pleased to find such a high-caliber buyer for our interest in Genworth Canada," company CEO Tom McInerney said. "We look forward to working with Brookfield Business Partners through the sale process and required regulatory approvals and, ultimately, moving forward with our long-awaited closing of our merger with Oceanwide."
Even if the sale clears Canada off the merger review list, the deal is not out of the woods yet. Although the sale has been approved by the Committee on Foreign Investment in the United States, it still needs clearance in China for currency conversion. Given the continued tensions between the U.S. and China, there are no guarantees that approval will come quickly.
As long as the merger agreement remains in effect, expect Genworth shares to trade more on the chances of completion than on fundamentals or market conditions. The Canada sale was a huge step in the right direction, and Genworth shares reacted accordingly.
At the time of writing, shares of Genworth still trade at an 18% discount to the proposed $5.43 buyout price. That's a nice payday for speculators who hope the Oceanwide deal will eventually get done, but also a reminder of how uncertain that outcome is.