Further, the merged insurance entity will be paying a non-compete fee to the promoter group of Max Financial Services as a part of the proposed transaction, the statement said.
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“The term of non-compete clause will be four years since the payment of an upfront fee of Rs 501 crore which will be payable post completion of the proposed transaction”.
In a deal that will create India’s largest private life insurer, the boards of HDFC Life and Max Life and its promoter entities have approved the merger of two insurance companies.
The total premium of the merged entity is expected to be almost Rs 26,000 crore and assets under management (AUM) will swell to over Rs 1 lakh crore.
With Rs.1.1 trillion of assets, the merged entity will overtake ICICI Prudential Life Insurance Co. Finally, the non-insurance businesses of Max Financial will merge into group company Max India Ltd. The whole merger process can take anywhere from 12-15 months, said the companies.
The relative valuation of HDFC Standard Life and Max Life would be 69 per cent and 31 per cent respectively, said HDFC Standard Life in a statement.
First Max Life will be merged into Max Financial Services.
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The scheme of arrangement has to get regulatory nods from the Competition Commission of India, the Insurance Regulatory and Development Authority of India, the Securities and Exchange Board of India (Sebi) and a high court.
HDFC and Standard Life Mauritius Holdings will continue to be the promoters of the merged HDFC Life and HDFC will cease to be the holding company of HDFC Life post-merger but will hold 42.5 percent in the company.
Before the merger of Max Life with HDFC Life, Max Life will be demerged from Max Financial Services and subsequently Max Financial Services would be merged into Max India.
HDFC holds 61.6% stake in HDFC Life, its partner Standard Life holds 35%.
HDFC Life was the first private life insurer to launch operations in FY 2001 and has since grown steadily over the years and crossed the half million customer mark in FY 2007.
Analjit Singh, founder and Chairman Emeritus of Max Group said: “We see structural changes in the life insurance companies [through bancassurance distribution]; we see shorter horizon products being more palatable with future markets and see that margins will come under pressure, if expense management is not brought to the fore”.
“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. Max Financial owns 68 percent stake in Max Life, while Mitsui Sumitomo owns 26 percent. “There’s tremendous growth opportunity in the insurance sector”.
Chaudhry said the merged entity will have a market share of 10.8 per cent in the individual segment and 3.85 per cent in the group segment.
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“The consolidation in the private sector will create large insurance companies, which is inevitable”, Deepak Parekh, chairman of HDFC said.The top 4 private insurers today constitute 65 percent of the private insurance market, while the remaining 19 private insurers have a combined market share of 35 percent. The LIC market share is now 50 per cent.
