HDFC, Max Group Announce Merger of Life Insurance Businesses to Form Entity of Rs 67K Cr

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In what could be seen as a significant development in the life insurance industry, HDFC Life, Max Life and Max Financial Services gave their nod to the merger of life insurance businesses among the entities. The estimated market value of the combined entity will be Rs 67,000 crores subsequent to the completion of all-share transaction in about 12-15 months. As part of the development, the Max promoter group will receive a non-compete fee of Rs 850 crores over a period of 4 years. Subsequent to the move, HDFC Life and Max Life would have a relative valuation of 69% and 31%, respectively, in the combined entity, as per the agreed valuation and exchange ratio, said HDFC Life in a release. However, the merged entity will operate under the name of HDFC Life, which is set to become the second largest life insurer in the country with a market share of 10.8%, behind the industry behemoth Life Insurance Corporation of India (LIC), a state-owned insurer that rules with a share of 70%. The embedded value and total assets under management of the merged entity will be over Rs 15,000 crores and Rs 1.10 lakh crores, respectively. Subsequent to the necessary regulatory and other approvals, the companies will involve in a slew of transactions prior to the completion of the deal.

Transactions to Happen

Max Financial Services, the listed parent firm of Max Life, will absorb the latter. The shareholders of Max Life will receive one share of Max Financial in exchange of their five shares. HDFC Life will take over the life insurance business from Max Financial. Max Financial shareholders will receive 2.33 shares of HDFC Life for each of their shares. Max India will absorb Max Financial, which holds the residual business. The new entity, HDFC Life, will become a listed company with its promoters HDFC Ltd and Standard Life (Mauritious Hokdings) 2006 Ltd.

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How will companies stack up for stake ownership?

HDFC will hold a majority of 42.5% stake in the merged entity, followed by Standard Life, Mitsui Sumitomo, Max Group and Axis Bank with 24%, 7.8%, 6.6% and 1.2%, respectively. Currently, HDFC Ltd and Standard Life own 62% and 35% stake, respectively, in HDFC Life. While Max Financial and Mitsui Sumitomo hold a stake of 68% and 325, respectively, in Max Life.