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The private equity arm of Brookfield Asset Management has reached a $2.4-billion deal to acquire control of Genworth MI Canada Inc., the country's second-largest mortgage insurer.
Brookfield Business Partners LP, a publicly-traded subsidiary of the global asset manager, is buying a 57-per-cent stake in Genworth MI Canada from the mortgage insurer's American parent company, Genworth Financial Inc. Brookfield intends to draw on its balance sheet to pay about US$700-million of the purchase price, and to bring in institutional partners to fund the remainder.
Brookfield will pay $48.86 per share, acquiring nearly 49 million shares in Genworth MI Canada. At Monday's close on the Toronto Stock Exchange, the shares were trading at $51.46 - near the stock's all-time high.
The deal solves a headache for Richmond, Va.-based Genworth, which has waited years for regulators to approve a separate deal by which it is expected to be acquired for US$2.7-billion by a privately-held Chinese buyer, China Oceanwide Holdings Group Co. Ltd. That deal, which was first announced in October of 2016, had stalled while awaiting approval from Canadian regulators and federal officials, which held the deal up over national security concerns even after U.S. regulators gave it a green light.
Earlier this summer, Genworth Financial announced it was considering "strategic alternatives" for Genworth MI Canada, seeking to break the deadlock. After soliciting bids, Brookfield Business Partners emerged as the winning suitor.
"We are very pleased to make this investment in Genworth Canada, a high-quality leader in the mortgage insurance sector," said David Nowak, managing partner for Brookfield Business Partners, in a news release.
The deal is subject once again to regulatory approvals from Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), and the Minister of Finance. It is expected to close later this year, and Brookfield has agreed to provide Genworth Financial with a bridge loan of up to US$850-million if regulatory approvals have not been granted by October 31.
The Canadian arm of Genworth, which was partly spun out in an initial public offering in 2009 but remained under the control of the U.S. parent, is a rare asset. It is Canada's largest private sector mortgage insurer, providing insurance against default to residential mortgage lenders, trailing only the government-owned Canada Mortgage and Housing Corporation (CMHC) in size. The only privately-owned competitor to Genworth in Canada is Canada Guaranty Mortgage Insurance Company, which is jointly owned by Ontario Teachers’ Pension Plan and a holding company controlled by financier Stephen Smith.
Genworth MI Canada reported profit of $110-million in its most recent quarter, which ended June 30, after earning $452-million in profit during the 2018 fiscal year.
"We are pleased to find such a high-caliber buyer for our interest in Genworth Canada," said Tom McInerney, president and CEO of Genworth Financial, in a statement.
Genworth's position in Canada's highly consolidated mortgage insurance market made it a logical target for Brookfield Business Partners, which seeks to acquire and manage companies that are hard to replicate and well established in industries where the barrier to entry is high. Brookfield also has extensive expertise in mortgages and housing: It is one of the largest residential real estate developers in North America, active in real estate financing, and owns the Royal LePage brokerage.
Brookfield is not currently looking to acquire the remaining 43 per cent of Genworth MI Canada shares that are publicly owned.
Under its agreement with Genworth, Oceanwide Holdings has the right to accept or reject the terms of the sale of Genworth's Canadian arm. But in a statement, Genworth said Oceanwide has consented to the transaction with Brookfield. Oceanwide chairman Lu Zhiqiang said he is "pleased with the quality of the buyer as well as the purchase price they have offered."
Genworth Financial and Oceanwide have extended the deadline to complete their own transaction until Dec. 31, 2019.
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August 13, 2019 at 05:37PM
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