HDFC ERGO General Insurance has acquired its smaller rival L&T General Insurance in an all-cash deal for Rs 551 crore.
L&T General Insurance, a wholly owned subsidiary of Larsen & Toubro, is a relatively new entrant in the insurance industry. During FY16, L&T General Insurance wrote gross premium of Rs 483 crore registering a growth of 40 per cent over previous financial year. The company has 28 offices and employee strength over 800 employees.
Deepak Parekh, chairman of HDFC and HDFC ERGO General Insurance said, “Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable. This transaction marks the beginning of this consolidation phase. The acquisition will help HDFC ERGO to further strengthen its presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders.”
HDFC ERGO is a 51:49 joint venture between housing major HDFC Limited and ERGO International, Germany (part of Munich Re Group), and the 4th largest private sector general insurer in India. During the financial year ended March 2016, the company wrote gross premiums of Rs 3,467 crore and made a profit after tax of Rs 151 crore. The company operates through 108 offices and employees strength of 2007.
HDFC has agreed to sell 12.33 crore equity shares of Rs 10 each of HDFC ERGO, representing 22.902 per cent of its paid-up share capital, to ERGO International at a price of Rs 90.973 per share, aggregating to a consideration of Rs 1,122 crore. HDFC said it has concluded the transfer of the said shares at the price as stated above resulting in a pre-tax profit of Rs 922 crore. As HDFC ERGO is an unlisted entity, the capital gains tax on the sale of shares is Rs 197 crore, resulting in a post-tax profit of Rs 725 crore. HDFC’s holding in HDFC ERGO will come down to 50.73 per cent, while that of Ergo rises to 48.74 per cent.