HDFC Standard, Max Life, Max Financial Approve Merger Plan
HDFC Standard Life, Max Life and Max Financial approved the merger plan which will pave the way for the formation of India’s largest private insurance company.
The board of HDFC on Monday approved the merger of Max Life and Max Financial Services with its insurance arm HDFC Standard Life Insurance Company. The merged entity will create the country’s biggest private sector life insurer, HDFC Life had said in June.
The total premium of the merged entity is expected to be nearly Rs 26,000 crore and assets under management will top Rs 1 lakh crore, according to a joint press release. In the private life insurance space, only ICICI Prudential Life Insurance had reported AUM of Rs 1 lakh crore.
Two-Step Merger
Under the two-step process, Max Life will first merge with its parent company Max Financial Services. Then, the life insurance business will be de-merged from Max Financial into HDFC Life.
The deal envisages shareholders of Max Life getting one share of Max Financial for every 4.98 shares of Max Life. In the second step, shareholders of Max Financial (post the amalgamation with Max Life) will get 2.33 shares of HDFC Life for each share they hold, the joint statement said.
“As part of the proposed transaction, the life insurance business of Max Financial, currently held through Max Life, would be finally amalgamated into Max India Ltd,” the statement added.
Post the merger, HDFC’s shareholding in HDFC Standard Life would be 42.5 percent and consequently the insurance firm would cease to be a subsidiary. Standard Life would hold 24.1 percent in the combined entity.
The relative valuation of the merged entity will be over Rs 65,000 crore. Sixty-nine percent of this value is attributable to HDFC Life and 31 percent to Max Life.
Max Group will hold 6.5 percent in the merged entity, its life insurance partner Mitsui Sumitomo will hold 7.8 percent in the merged entity. Max Group and Mitsui will be classified as public shareholders. The foreign holding in the combined entity would be below 49 percent.
The proposed merger transaction is subject to approval by a majority of shareholders present, and voting at a court-convened shareholders’ meeting of each of the involved companies, according to the joint statement.
The transaction is expected to be completed by the end of calendar year 2017. The shares of HDFC Life are proposed to be listed on Bombay Stock Exchange and the National Stock Exchange of India within 30-45 days of receipt of all approvals.
After the merger, HDFC Life will pay an upfront non-compete fee of Rs 850 crore to Max Financial Services’ promoter group. This will include an upfront payment of Rs 501 crore, while the remaining Rs 349 crore will be paid in three equal installments.
Regulatory Hurdles?
HDFC Chairman Deepak Parekh hopes the deal will pass muster with capital market regulator, the Securities and Exchange Board of India, he said at the joint press conference.
SEBI will look at the general body resolution. In the Extraordinary General Meeting or EGM of the shareholders, the promoters are not allowed to vote. As the majority of minority will have to vote, (promoters of Max Life) Analjit and his family cannot vote. And if he gets the majority of minority approved, then SEBI should not have any problem.Deepak Parekh, Chairman, HDFC
Edinburgh-based Standard Life Plc.’s holding in the merged entity will decline to 24.1 percent from the 35 percent stake it holds currently in HDFC Life. Standard Life will increase its stake to beyond 25 percent, either by acquiring stake from HDFC or from some of the existing shareholders of Max, Keki Mistry, Vice Chairman of HDFC told BloombergQuint.
The merger will bring synergies both in terms of topline growth and cost savings, Mistry added.
Both companies will set up an integration committee comprising of majority members from HDFC Life, the company’s Chief Executive Officer and Managing Director, Amitabh Chaudhry said at the press conference.
The combination will give us a much larger scale of operations. We are looking forward to working closely with Max Life employees and customers and building a strong franchise.Amitabh Chaudhry, CEO & MD, HDFC Life
For HDFC, this will be the second merger announcement this month after HDFC Ergo General Insurance announced the takeover of 100 percent stake in L&T General Insurance.