HDFC Life Insurance, the unit of the country’s largest mortgage lender, Housing Development Finance Corp, has received board approval to merge with the Analjit Singh-promoted, listed insurance company Max Financial Services, which will create a life insurance giant with annual premium of Rs 25,500 crore. It will also give HDFC Life an automatic listing on the stock exchanges.
The merger will make HDFC Life the country’s largest private sector insurance company with the combined entity having a market share of 10.8% on the basis of individual new business premiums received in 2015-16.
HDFC holds 61.6% stake in HDFC Life, its partner Standard Life holds 35%. For the year ended March 31, 2016, HDFC Life’s total premium income stood at Rs16,310 crore, and it reported a profit of Rs820 crore. Its total assets under management stood at Rs74,247 crore.
Post the completion of the deal, HDFC Life will become a listed company with HDFC and Standard Life (Mauritius Holdings) 2006 as promoters of the merged entity.
“We are proud to announce our association with the Max Group. We view this merger as long term value creation for shareholders of HDFC Life,” said Deepak Parekh, chairman, HDFC.
As a part of the proposed transaction, the life insurance business of Max Financial, currently held through Max Life, would be amalgamated with HDFC Life and all other businesses of Max Financial will be merged into Max India Ltd.
For the merger of Max Life into Max Financial Services, shareholders of Max Life will get one share of Max Financial Services for about five shares of Max Life, the companies said in a statement.
For the demerger of the life insurance undertaking from Max Financial Services into HDFC Life, shareholders of Max Financial Services (post the amalgamation with Max Life), will get 2.33 shares of HDFC Life for each share of Max Financial Services, the statement added.
The deal is expected to be effective in the next 12-15 months.
“Max Life and HDFC Life have complementary strengths which would make this merger hugely beneficial for all stakeholders including customers, employees, distribution partners and investors,” said Analjit Singh, founder and chairman emeritus, Max Group.
“The combination will give us a much larger scale of operations,” said Amitabh Chaudhry, CEO and MD of HDFC Life.
The term of the non-compete agreement will be four years since the payment of an upfront fee of Rs501 crore, which will be payable post completion of the proposed transaction. This will be followed by three equal installments totaling Rs349 crore.
HDFC Life has also entered into a trademark license agreement to use the ‘Max’ brand for life insurance products that will transition from Max Life, for seven years post completion of the said transaction.
HDFC shares closed at Rs1,367.45, up 2% on Monday, while Max India was down 3.1% at Rs130.85. The announcement was made after market hours.