HDFC Ltd has agreed to acquire 51.2 per cent stake in Apollo Munich Health Insurance Company for around Rs 1,346.8 crore and later merge the firm with its general insurance subsidiary, HDFC Ergo General Insurance Company in a two-stage deal.
The home mortgage firm has entered into a definitive agreement to acquire the entire 50.8 per cent shareholding of Apollo Hospitals Group, promoted by Prathap Reddy, in the health insurance firm for a consideration of Rs 1,336 crore and 0.4 per cent shareholding held by a few employees for Rs 10.84 crore.
Post-acquisition of the shares by HDFC, Apollo Munich will be merged with HDFC Ergo General Insurance, subject to all regulatory, shareholders & other approvals. To support the transaction with its material benefits for Apollo Munich, Munich Health will pay Rs 294 crore to Apollo Hospitals Enterprise and Apollo Energy Ltd in connection with the termination of their joint venture.
The merger with HDFC Ergo will create a health insurance franchise with combined gross direct premium of Rs 10,807 crore
The merged insurance entity on a pro-forma basis has a combined market share of 6.4 per cent of non-life insurance industry, with 308 branches across the country. This also makes the combined entity the second largest private insurer in the accident and health segment with a market share of 8.2 per cent. “The proposed merger is expected to result in significant benefits to policy holders and other stakeholders with an enhanced product suite, touch points, technology innovation, as also via scale based synergies,” HDFC said in a statement.
The proposed share acquisition will be subject to regulatory approvals by National Housing Bank (NHB), Insurance Regulatory and Development Authority of India (IRDAI) and Competition Commission of India. The subsequent merger of Apollo Munich with HDFC Ergo would be subject to approval of shareholders, National Company Law Tribunal and final approval of IRDAI.
Deepak Parekh, chairman of HDFC and HDFC Ergo General Insurance said, “The combined expertise of HDFC Ergo and Apollo Munich will result in greater product innovation, wider distribution and enhanced servicing capabilities, benefiting their 1.2 crore policy holders.” “Based on acquisition price of Rs 1,347 crore for 51.2 per cent equity stake in Apollo Munich, the company is valued at a multiple of 1.2 times the gross written premium in FY19. We believe this valuation is reasonable and this transaction will result in strong synergies and bring in economies of scale,” he said. “What is particularly attractive for us is Apollo Munich’s strong agency network with over 70,000 agents. A diversified distribution network is essential to strengthen market position. We have assured that we will retain all the employees of Apollo Munich.”
Shobana Kamineni, chairperson Apollo Munich Health Insurance and Vice Chairperson Apollo Hospitals Enterprise, said, “We are glad to pass on the baton of Apollo Munich to a reputed group like HDFC. We are sure that new shareholder will continue to nurture and scale the business to greater heights… Funds from divestment will enable us to focus on investing and growing core healthcare business.”
Markus Riess, chairman, Ergo Group AG Germany and member of the board of Munich Re, said, “Over the years, Munich Re Group has enjoyed an excellent relationship with the Apollo group, in building a powerful franchise in Health insurance. With this transaction, we are very much looking forward to further strengthening our ties with HDFC Group and consolidating presence in India.”