May 24, 2004
By JACK WILLOUGHBY
GENERAL ELECTRIC ADS USED TO BOAST that it brings good things to life. This week, the company will have a chance to do just that. GE flips the switch on the public sale of its Genworth Financial subsidiary, a provider of mortgage insurance, asset-management and retirement services to 15 million customers worldwide.
Certainly Genworth Financial, based in Richmond, Va., must be the biggest IPO nobody’s ever heard of. By size it will outstrip Google, China Life Insurance or any other IPO priced so far this year. “In the past, big insurance deals like this have set the tone for other IPOs that follow,” says Richard Peterson, market strategist for Thomson Research.
General Electric wants to sell 145 million newly minted Genworth shares to the public via Goldman Sachs and Morgan Stanley for an average price of $22 apiece, thereby pocketing $3.2 billion. An extra $600 million will come from the simultaneous sale of senior convertible notes with an anticipated coupon of 6%, due in 2005.
GE plans to offer more Genworth stock in coming months, and to reduce its 70% ownership stake to less than 50% within two years. It’s part of GE’s efforts to spruce up its balance sheet, shedding diverse businesses.
Genworth Financial has positive earnings momentum, though rising interest rates could pose a problem later. Net income for the three months ended March 31 was $260 million, or 53 cents a share, on revenue of $3 billion, compared with $254 million, or 52 cents, on revenue of $2.8 billion a year earlier.
“For years, Genworth has operated under the GE mandate of stability of income,” says Linda Killian, portfolio manager of Renaissance Capital’s IPO Plus fund, Greenwich, Conn. “As an independent firm Genworth’s solid management team can now concentrate on improving returns.”
Killian estimates Genworth’s $22 offer price to be at or below stated book value, compared with 1.1 times for Metropolitan Life’s IPO, and 1.0 times for Prudential Financial. The $22 price comes in at about 9.4 times earnings, compared with 9.6 times for Metropolitan Life and 12.8 times for Pru.