For those of you that are interested in why Genworth Financial (NYSE: GNW) is willing to be bought out at US$5.43/share when their book value is far, far higher should take notice of this following Wall Street Journal article about the woes of another long-term care insurance provider that went belly-up.
Putting a long story short, there is an accounting mismatch – the liabilities on the book are less than what the actual liabilities will be.
There has been a lot of incorrect analysis (especially on Seeking Alpha) on the actual value of the holding company. In general when one sees sloppy analysis that is regarded as consensus, there is a necessary, but not sufficient condition for an investment decision in the contrary.
Sacha,
I understand your reasoning but with a willing buyer and seller involved does it not come down to shareholder approval and various government agency approvals; none of which are guaranteed especially the latter.
I assume the buyer is aware of the liability and will not walk away but are you betting that the deal will not be approved?
Hi Frank, I have no idea whether Genworth Financial’s buyout will be successful or not. The regulatory approvals are the stumbling block. I have no position in Genworth Financial, although I did have one. I sold before the buyout offer.
Sacha,
Do you follow VOYA Financial? Think they suffer from the same beast and deserve their low PB ratio (there’s no LTC segment, but they have Closed Block Variable Annuity)?
Other than knowing they were ING’s former insurance division in the USA, I haven’t tracked them.