Max Financial To Acquire Mitsui Sumitomo’s 21% Stake In Max Life Via Share Swap

Max Financial Services Ltd. has agreed to allow Mitsui Sumitomo Insurance Co. Ltd. to swap its shareholding in Max Life Insurance Co. Ltd. for a stake in the listed entity.

Max Financial—the holding company of the Indian insurer—will issue 7.54 crore shares on a preferential basis to the Japan-based firm at Rs 565.11 apiece. That aggregates to 21.87 percent stake in Max Financial, according to an exchange filing.

In return, Mitsui Sumitomo Insurance will transfer 39.48 crore shares, or 20.57 percent stake, of Max Life Insurance at Rs 108.02 apiece to Max Financial.

After the share swap, Mitsui Sumitomo Insurance's stake in Max Life will go down from 25.5 percent to 4.93 percent, while Max Financial Services' stake in Max Life will go up to 93.1 percent from 72.5 percent.

A similar transaction was proposed in August last year but called off in November.

Contours of the deal

• Max Financial has the right (but not the obligation/call right) to purchase from Mitsui Sumitomo Insurance its balance shareholding in Max Life for cash.
• Mitsui Sumitomo Insurance also has the right (but not the obligation/put right) to require the company to purchase its balance shareholding in Max Life for cash.
• Purchase price for equity shares to be acquired by the company pursuant to the exercise of the call right/put right shall be at Rs 85 apiece, subject to applicable laws.
• The call/put right is exercisable after completion of 12 months from the closing date of the transaction.

This came after nearly two weeks after Axis Bank Ltd., Max Financial and Max Life signed a confidentiality and exclusivity pact to explore the possibility of the private lender entering a long-term strategic partnership with the life insurer.

Nomura said this shareholding realignment was one more step towards a widely expected long-term agreement with Axis Bank.

That's because any stake sale or dilution to Axis Bank (distribution partner) at below market price will be a cost to Mitsui Sumitomo Insurance as well and a fair deal to Max Financial shareholders, the brokerage said in a note.

According to Investec, “The share swap arrangement is accretive for Max Financial's existing shareholder, primarily due to put/call option where the exercise price is implying a valuation of Max Life at just Rs 16,300 crore versus our valuation of Rs 35,000 crore.”

Also, the total liability for Max Financial for the put/call option stands at Rs 800 crore, which Max Financial should be able to fund from the sale proceeds of its stake in Max Life to Axis Bank, the brokerage said. “We expect Axis Bank to take approximately 20 percent stake in Max Life for Rs 600 crore.”