Saturday brought some very welcome news for shareholders in Genworth Financial (GNW), with the firm announcing that the Committee on Foreign Investment in the United States (CFIUS) had completed its review of the proposed buyout of Genworth Financial by China Oceanwide. Completion of the CFIUS review concluded that there are "no unresolved national security concerns with respect to the proposed transaction." The companies won CFIUS approval by agreeing to use a US third party service provider to manage data for US policy holders.
While the deal still must be approved by other regulators, the CFIUS approval is a huge step forward for this merger, and removes a lot of uncertainty surrounding the completion of the deal. Since President Trump was elected, several takeovers have been blocked after CFIUS would not give its approval, including Broadcom's (AVGO) takever of Qualcomm (QCOM) and Lattice Semiconductor's (LSCC) purchase by Cayon Bridge Capital Partners, Xcerra's (XCRA) purchase by Hubei Xinyan, and MoneyGram's (MGI) purchase by Ant Financial. These events rightly caused a good deal of skepticism that the Genworth buyout would be approved, especially since Genworth and Oceanwide had withdrawn and reapplied to CFIUS four different times since the original application in January of 2017.
Based on the CFIUS approval, shares of GNW have jumped higher, but are still well below the buyout price of $5.43. Shares closed Friday at $3.81, meaning there was a spread of $1.62, or 42.5% between the share price Friday and the buyout offer. Based on CFIUS approval, which removed a huge uncertainty over the buyout, that gap has closed to $0.70, or ~14.8% as of Monday morning. I'll be looking to add to my position in GNW at these levels, and have already added to my holdings this morning. It seems more likely than not that this deal will end up getting consummated, and the merger arbitrage spread is wide enough to provide a compelling return when the deal does go through.
Disclosure: I am/we are long GNW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.