Genworth Financial (NYSE: GNW) owns 57% of Genworth MI (TSX: MIC). GNW has also been subject to a merger agreement with a China-state owned entity, China Oceanwide, which proposed acquiring GNW for US$5.43/share. One of the conditions is the approval of the various regulatory authorities. The key stumbling block appears to be the Canadian regulator, and as a result, GNW is proposing to explore selling the MIC entity.
There are two questions. One is who would purchase MIC, and the second is the valuation. Surely the acquirer would have to be a Canadian entity – my guess is that the CPPIB or provincial pension arms would be ripe candidates (which would ensure that substantially all of the Canadian mortgage insurance market is held by crown corporations). There are not a lot of insurers that would have the capacity to take on MIC – obvious candidates include MFC, SLF, GWO, FFH or IFC.
The market is up about 4% for MIC presently. There’s a pretty good case to be made that the transaction, if it were to occur, would have a fair value higher than the presently selling stock price, but I don’t see any potential acquirers over-reaching beyond CAD$50/share or so (which I think is the price that GNW will want to get). It just depends on how badly GNW wants this merger to complete – a purchase of GNW presently would gain 46% in value if the merger was completed – and they have huge issues of their own with respect to their long-term care insurance liabilities.