 "HDFC, Max to merge life insurance arms")
Max Financial Services and Max Life have entered into an agreement for a merger with HDFC Life. Under this arrangement, Max Life will first merge with Max Financial Services which in turn will merge with HDFC Life.
Since Max Financial Services is already listed, the combined entity would automatically be listed, without the need for Housing Development Finance Corporation (HDFC) Life having to go to the market separately for an initial public offer (IPO) of equity.
In a statement to the stock exchanges, Max Financial Services and HDFC said their respective boards had approved entering a confidentiality, exclusivity and standstill agreement to evaluate a potential combination through a merger. Their joint venture partners, Mitsui Sumitomo Insurance of Japan and Standard Life of the UK, have also given the nod for the proposal.
The agreement provides for a mutually agreed exclusivity period of 60 days for due-diligence and discussions between the parties in relation to a proposed transaction. It has not been mentioned as to how much stake the foreign partner of Max Life will hold post the merger.
ALSO READ: HDFC Life-Max Life deal a win-win
The companies said the merger should be completed within 12 months.
Deepak Parekh, chairman, HDFC said, “We believe consolidation in the private (life insurance) sector would enable the creation of large companies which can then drive economies of scale, thereby servicing customer interests better at constantly declining structures.”
Parekh said the top four private insurers constitute 65 per cent of the private insurance market, while the remaining 19 have a combined market share of 35 per cent.
ALSO READ: Consolidation likely now in insurance sector
He also said with the strong distribution network of Max Life, the combined entity would be able to achieve double- digit annual growth.
The combined entity will become the country’s largest private sector insurer, both in terms of assets under management and new business premiums. Assets under management of the combined entity will touch Rs 1.10 lakh crore and new premiums will touch Rs 9,400 crore.
Analjit Singh, founder and chairman-emeritus of Max Group said that Max Life is the largest non-bank owned life insurance company in India. Being a large player, he said that they had been contemplating for some time as to what should be their next move.
“We thought that we cannot just sit in the same position, else there would be a threat of de-growing and losing our rank in the league table,” he said.
Singh added Max Life could have consolidated and acquired a smaller company with less operating experience, meagre performance or do the best thing for the company, which was to trade up and merge with an iconic brand that has a substantially larger operation.
“We always feel happy to be a smaller portion of a bigger play than vice-versa because that is what is best for the stakeholders. There is a cultural match between both the companies,” said Singh.
HDFC Life is a joint venture between HDFC and Standard Life, a provider of financial services in the UK. HDFC holds a 61.63 per cent stake in HDFC Life and Standard Life 35 per cent. Max Life Insurance is a joint venture between Max Financial Services (68.01 per cent holding) and Mitsui Sumitomo Insurance, which holds a 25 per cent stake in the insurer.
While the companies are yet to work out the deal valuations and swap ratios, according recent brokerage reports, the value of HDFC Life is about Rs 24,000 crore while that of Max Life is pegged at Rs 16,000 crore based on analysts estimates for FY17. These are only indicate purposes.
While HDFC Life is unlisted, Max Financial Services’ market capitalisation stood at Rs 11,480 crore, a day prior to the merger announcement. The stock gained 10.3 per cent following the announcement to close at Rs 472.80 on Friday. Given that it is debt free and that it holds 68 per cent stake in Max Life, the market was valuing the insurance business at Rs 16,880 crore, which is a little over what analysts have pegged the value at. If this is the basis of valuations, the shareholding in the merged entity will be 60 per cent for HDFC Life shareholders and 40 per cent for Max Life shareholders.
Given that public shareholders held 69.55 per cent stake in Max Financial Services as on 30 March 2016, they will hold approximately 28 per cent stake in the combined listed entity. Since the minimum public shareholding is mandated at 25 per cent, the new entity will be compliant on that front.
This will be the second merger announced by HDFC this month. Earlier in June, HDFC Ergo General Insurance, the general insurance arm of HDFC, said it would acquire L&T General Insurance for Rs 551 crore.
HDFC Life, the third largest private life insurance company with respect to new premiums, collected premiums of Rs 6,488 crore for the year ended March 31, 2016. Max Life, on the other hand, collected premiums of Rs 2,882 crore for 2015-16 and is among the top five private life insurance players.
Started in 2001, HDFC Life was the first private life insurance company to be granted a licence to operate in India.
The announcement comes at a time when HDFC was planning to list HDFC Life. In April, HDFC had informed the exchanges that it had agreed in-principle to sell up to a 10 per cent stake in HDFC Life through an offer for sale. HDFC Life’s board of directors have approved taking steps to initiate the initial public offer (IPO) process. Standard Life recently hiked its stake in HDFC Life to 35 per cent from 26 per cent. The value of the 9 per cent stake was Rs 1,705 crore, valuing in HDFC Life at about Rs 19,000 crore at the time of announcement in August 2015.
HDFC Life posted a net profit of Rs 818 crore for the year ended March 31, 2016, registering a growth of 4.2 per cent from 2014-15. Its new business premiums grew by 18.1 per cent to Rs 6,487 crore in 2015-16 from Rs 5,492 crore in 2014-15. HDFC Life’s total premiums collected grew by 10 per cent to Rs 16,313 crore in 2015-16 from Rs 14,830 crore in 2014-15.
Max Life’s profit stood at Rs 439.1 crore for 2015-16.
Since Max Financial Services is already listed, the combined entity would automatically be listed, without the need for Housing Development Finance Corporation (HDFC) Life having to go to the market separately for an initial public offer (IPO) of equity.
In a statement to the stock exchanges, Max Financial Services and HDFC said their respective boards had approved entering a confidentiality, exclusivity and standstill agreement to evaluate a potential combination through a merger. Their joint venture partners, Mitsui Sumitomo Insurance of Japan and Standard Life of the UK, have also given the nod for the proposal.
The agreement provides for a mutually agreed exclusivity period of 60 days for due-diligence and discussions between the parties in relation to a proposed transaction. It has not been mentioned as to how much stake the foreign partner of Max Life will hold post the merger.
ALSO READ: HDFC Life-Max Life deal a win-win
The companies said the merger should be completed within 12 months.
Deepak Parekh, chairman, HDFC said, “We believe consolidation in the private (life insurance) sector would enable the creation of large companies which can then drive economies of scale, thereby servicing customer interests better at constantly declining structures.”
Parekh said the top four private insurers constitute 65 per cent of the private insurance market, while the remaining 19 have a combined market share of 35 per cent.
ALSO READ: Consolidation likely now in insurance sector
He also said with the strong distribution network of Max Life, the combined entity would be able to achieve double- digit annual growth.
The combined entity will become the country’s largest private sector insurer, both in terms of assets under management and new business premiums. Assets under management of the combined entity will touch Rs 1.10 lakh crore and new premiums will touch Rs 9,400 crore.
Analjit Singh, founder and chairman-emeritus of Max Group said that Max Life is the largest non-bank owned life insurance company in India. Being a large player, he said that they had been contemplating for some time as to what should be their next move.
“We thought that we cannot just sit in the same position, else there would be a threat of de-growing and losing our rank in the league table,” he said.
Singh added Max Life could have consolidated and acquired a smaller company with less operating experience, meagre performance or do the best thing for the company, which was to trade up and merge with an iconic brand that has a substantially larger operation.
“We always feel happy to be a smaller portion of a bigger play than vice-versa because that is what is best for the stakeholders. There is a cultural match between both the companies,” said Singh.
HDFC Life is a joint venture between HDFC and Standard Life, a provider of financial services in the UK. HDFC holds a 61.63 per cent stake in HDFC Life and Standard Life 35 per cent. Max Life Insurance is a joint venture between Max Financial Services (68.01 per cent holding) and Mitsui Sumitomo Insurance, which holds a 25 per cent stake in the insurer.
While the companies are yet to work out the deal valuations and swap ratios, according recent brokerage reports, the value of HDFC Life is about Rs 24,000 crore while that of Max Life is pegged at Rs 16,000 crore based on analysts estimates for FY17. These are only indicate purposes.
While HDFC Life is unlisted, Max Financial Services’ market capitalisation stood at Rs 11,480 crore, a day prior to the merger announcement. The stock gained 10.3 per cent following the announcement to close at Rs 472.80 on Friday. Given that it is debt free and that it holds 68 per cent stake in Max Life, the market was valuing the insurance business at Rs 16,880 crore, which is a little over what analysts have pegged the value at. If this is the basis of valuations, the shareholding in the merged entity will be 60 per cent for HDFC Life shareholders and 40 per cent for Max Life shareholders.
Given that public shareholders held 69.55 per cent stake in Max Financial Services as on 30 March 2016, they will hold approximately 28 per cent stake in the combined listed entity. Since the minimum public shareholding is mandated at 25 per cent, the new entity will be compliant on that front.
This will be the second merger announced by HDFC this month. Earlier in June, HDFC Ergo General Insurance, the general insurance arm of HDFC, said it would acquire L&T General Insurance for Rs 551 crore.
HDFC Life, the third largest private life insurance company with respect to new premiums, collected premiums of Rs 6,488 crore for the year ended March 31, 2016. Max Life, on the other hand, collected premiums of Rs 2,882 crore for 2015-16 and is among the top five private life insurance players.
Started in 2001, HDFC Life was the first private life insurance company to be granted a licence to operate in India.
The announcement comes at a time when HDFC was planning to list HDFC Life. In April, HDFC had informed the exchanges that it had agreed in-principle to sell up to a 10 per cent stake in HDFC Life through an offer for sale. HDFC Life’s board of directors have approved taking steps to initiate the initial public offer (IPO) process. Standard Life recently hiked its stake in HDFC Life to 35 per cent from 26 per cent. The value of the 9 per cent stake was Rs 1,705 crore, valuing in HDFC Life at about Rs 19,000 crore at the time of announcement in August 2015.
HDFC Life posted a net profit of Rs 818 crore for the year ended March 31, 2016, registering a growth of 4.2 per cent from 2014-15. Its new business premiums grew by 18.1 per cent to Rs 6,487 crore in 2015-16 from Rs 5,492 crore in 2014-15. HDFC Life’s total premiums collected grew by 10 per cent to Rs 16,313 crore in 2015-16 from Rs 14,830 crore in 2014-15.
Max Life’s profit stood at Rs 439.1 crore for 2015-16.