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HDFC Life, Max Life merger to create entity with Rs 65K cr valuation

Share swap ratio set at 3:7, Rs 800 cr non-compete fee to be paid to Max; total premium at Rs 25,500 cr

By: ENS Economic Bureau | Mumbai |
August 9, 2016 1:25:48 am
HDFC Life-Max,  HDFC Life-Max merger, hdfc  HDFC Life-Max, business news Max Financial Services shareholders (after amalgamation with Max Life) will get seven shares of HDFC Life for every three shares of Max Financial.

HDFC Standard Life Insurance Company and the Max group entities have finalised the merger of Max insurance arm with the former, creating the largest private sector insurance company with a market valuation of Rs 65,000 crore. The shares of HDFC Life will be listed on the stock exchanges after the ‘complex deal’ involving four companies, a final share swap ratio of 3:7 with Max Financial Services shareholders and a non-compete fee payment of Rs 800 crore to Max.

Max Financial Services shareholders (after amalgamation with Max Life) will get seven shares of HDFC Life for every three shares of Max Financial.

The total premium of the merged entity will be around Rs 25,500 crore and assets under management are estimated at Rs 110,054 crore. “The boards of HDFC Life, Max Life Insurance Co, Max Financial Services and Max India at their respective meetings held today approved the entering into definitive agreements for amalgamation of business through a composite scheme of arrangement,” HDFC Life said.

Amitabh Chaudhry, MD and CEO, HDFC Life, said: “Based on agreed commercials, relative valuation of HDFC Life and Max Life is 69 per cent and 31 per cent, respectively.” The two sides have signed a non-compete and non-solicitation agreement for a period of four years from the payout of first tranche. This will include an upfront payment of Rs 501 crore payable immediately post completion of merger, followed by three equal annual installments totaling Rs 349 crore to Max. The payment will be made by merged company from the shareholders’ account.

As a part of the proposed transaction, Max Life will merge into Max Financial Services which is the listed entity. Then Max Financial will demerge the life insurance business into HDFC Life. In the third step, Max Financial will merge with Max India (listed entity) business of Max Financial would be finally amalgamated into Max India Limited,” it added.

Deepak Parekh, chairman, HDFC said: “Analjit Singh will continue to be a supportive shareholder of the merged entity along with other shareholders of merged entity. We all will work towards objective of making the merged company a better and more successful company.” HDFC’s stake in the merged entity will come down to 42.5 per cent, Standard Life’s stake will come down to 24 per cent. There is a condition that Standard Life stake will be allowed to go up to 25 per cent during the course of the next three-six months. While Max sponsors will hold around 6.5 per cent in the merged entity, remaining stake will be with Mitsui Sumitomo Insurance and other players. HDFC Ltd and Standard Life will be the promoters of the merged entity.

Chaudhry said the merged entity will have a market share of 10.8 per cent in the individual segment and 3.85 per cent in the group segment. The proposed transaction will also need approval by a majority of shareholders present and voting at the Court convened shareholder meetings of HDFC Life, Max Life, Max Financial Services and Max India. The closing of the proposed transaction will also be subject to certain conditions, including regulatory approvals by the Insurance Regulatory and Development Authority of India, Competition Commission of India, Securities and Exchange Board of India, stock exchanges and the High Court.

Earlier, HDFC and Max groups had entered into an agreement to evaluate a potential combination through a merger of Max Life and Max Financial into HDFC Life through a scheme of arrangement. However, insurance regulator IRDAI had expressed concerns over transfer of liabilities related to businesses other than life insurance to the merged entity, if Max Financial and Max Life were merged into HDFC Life.

‘Pvt sector can be a challenge to LIC’

Mumbai: HDFC chairman Deepak Parekh on Monday said private sector insurance companies can give big challenge to public sector Life Insurance Corporation in terms of grabbing market shares.

“We all know that LIC had 100 per cent market share before the sector was opened up for the private sector. The LIC market share is now 50 per cent. It can be 25 per cent after some years,” Parekh said. “There’s tremendous growth opportunity in the insurance sector. In India, insurance is under-penetrated,” he said.

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