Long Term Ownership?

What kind of bosses are Chinese owners?

Photo: Photo Mix. Source: Pixabay

3,500 employees of Genworth Financial are about to find out. Genworth is the successor company to the old Life of Virginia, a Richmond-based life insurer founded in 1871. In the 1980s, they went through various business combinations, mergers, divestitures, and spin-offs. In 1996 they were bought by GE and sold back into the public markets about a decade later. Their principal products are annuities, mortgage insurance, and long-term care insurance. The mortgage insurance product almost sank them during the Financial Crisis, and their long-term care product has created massive headaches lately.

A year and a half ago, a Chinese conglomerate that invests real-estate, finance, and energy projects proposed to buy Genworth for $2.7 billion in cash, almost double where the company had been trading a few months before. The market saw the Chinese bid as a lifeline. Genworth stock had been trading at around 10 cents relative to its book price, its debt was rated below investment-grade, and their GE-inspired management team had been ousted. The Chinese bidder offered an infusion of capital and a cash-rich corporate parent. Genworth offered a toehold into the US insurance industry, experience in the long-term care business, and 15 million customers living in 25 different countries.

A lifeline. Source: US Navy

But the merger had to pass regulatory scrutiny, particularly from the Committee on Foreign Investment. This government entity has turned down a number of deals in the past: Broadcom’s acquisition of Qualcomm; Xcerra’s purchase by Chinese investor Hubei Xinyan; and MoneyGram’s purchase by Ant Financial, the online payment platform owned by Alibaba. Last weekend, US Committee approved the Genworth deal. They must have figured that the risk of Chinese ownership wasn’t any worse than the risk of Genworth closing its doors. The stock rose 25% and the bonds rose 15% on news of the approval.

The deal still needs approval by state insurance officials, but those are expected soon. It could close as early as July.

Security concerns are real, and shouldn’t be discounted. Chinese cultural norms are different that those of in US regarding personal privacy, information security, and State ownership of financial and productive assets. But trade and investment create connections that can have long-term benefits. And that’s not just for long-term care.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By | 2018-06-12T07:56:38+00:00 June 12th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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