M&A Updates: Genworth/Oceanwide Deal Is Progressing

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Includes: GNW, HHRBF, HUSKF, MEGEF, PDS, TDGCF, TPCO
by: Special Situation Investor

Summary

Genworth/Oceanwide situation has recently sparked an intense discussion.

Perfect time for Ensign Energy to revise their offer for Trinidad Drilling.

Husky Energy must back their words of commitment with action, if they want to get MEG Energy.

Let's continue with the updates. I particularly like GNW/Oceanwide situation and will continue to closely watch how the remaining regulatory approvals will advance.

Genworth (GNW)/Oceanwide (OTC:HHRBF) deal has progressed when Delaware state regulators announced a public hearing to be held on the 28th of Nov. The deal has already received some important green lights, including CFIUS in June and has yet to receive consents from two more states (Delaware and New York) and China. Closing is expected by the end of the year. Also, some very interesting discussion was sparked recently by a short thesis from Hindenburg Investment Research, which has been opposed by Seven Corner Capital article. Basically, Hindenburg stated that the deal will not get approved by the regulators, because it raises a threat to Genworth’s policyholders as Oceanwide, being in a very weak financial position may exploit the target company’s assets for its liquidity needs. Seven Corner counters this by saying that Oceanwide is nowhere near crisis level and, on the contrary, has more than enough funds to close the deal. Moreover, they cannot misuse Genworth’s assets as the transactions will be strictly regulated. Additionally, approvals should not be a problem as all the parties (US, China regulators and shareholders) have weighty incentives to push this merger through. I would strongly recommend to read both of them, including the comments as many serious points were raised and analysed there. Although I see more positive points than negative (however, not to extent of Seven Corner, which states that the chance of the merger success is 90%), and also risk/reward seems appealing due to the huge spread and time factors. It is still very advisable to take care as this acquisition can still go either way with the remaining approvals. Since the first time I wrote about this deal, the spread has widened from 17% to 27% mainly due to these regulatory approval concerns worsened by the tension of US-China trade war.

Some interesting action happening in a month ago mentioned situation between Precision Drilling (PDS)/Trinidad Drilling (OTCPK:TDGCF). Previously, PDS made an offer of 0.445 PDS/share, which at that time was about C$2, and it was far superior to Ensign Energy offer of C$1.68 in cash. However, since then, because of the stock sell-off, PDS shares have dropped 42%, making the offer worth C$1.4 now. The termination fee is C$20m, and Trinidad has not commented on this so far, but PDS CEO has said that Trinidad’s shareholders he has spoken to prefer their all-share deal as it will let them participate in the next upswing of the cycle. It is difficult to say what will happen, but it is hard to imagine Trinidad’s shareholders voting for a deal with -20% spread. PDS has time only until December/January when shareholders are expected to vote for the merger. By the way, Precision has recently received an early green light from antitrust making a significant step in gathering regulatory approvals. Nonetheless, now it is a perfect time for Ensign to improve their offer and completely turn the odds to their favor.

Husky Energy (OTCPK:HUSKF) remains committed to acquire MEG Energy (OTCPK:MEGEF) despite being turned down in August and then again in October. It also keeps collecting regulatory approvals and recently got green light from Canadian and US competition watchdogs. It should get all the rest by the end of this year. On the other hand, MEG states that current offer of C11$ or 0.485 Husky shares (actually worth C$8.9 at current prices) is undervaluing the company and that Husky “can afford to pay a lot more”. It is also expected that more topping bids will come. However, Husky’s CEO has downplayed the chance of them coming and is confident in their “unique way of adding the value through the transaction”. The offer is open until January 2019, and I think we will definitely see at least if not topping bids from competing companies then increased offer from Husky as besides noting their commitment on this deal, they should understand that if MEG did not accept C$11 earlier, then at current prices they have no choice but to boost the price. Nonetheless, Husky has noted that MEG’s share price has been largely influenced by the offer and would be much lower without it. It will be interesting to see how it goes.

It is expected that Tribune Publishing (TPCO) should announce the results of the recent buyout offers review together with their Q3 results on the 7th of November.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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