End of Life for HDFC-Max Insurance Deal
Exclusivity pact not being extended; merger plan could be revived at a later date, says HDFC Life CEO
The HDFC Life Insurance-Max merger plan was given a quiet burial on Monday after several weeks of uncertainty.
ET had reported on July 14 that the deal may be called off as the two hadn’t been able to hammer out an alternative structure for the transaction that had been rejected by the regulator in its existing form and because HDFC Life’s stakeholders wanted to go for an initial public of- fering rather than wait for the union to take place. The share-sale plan was subsequently announced, sealing the merger’s fate.
The two sides ran out the clock, having had until Monday to create a viable capital structure.
“The confidentiality, exclusivity and standstill agreement… entered amongst the parties is not being extended further,” Max Financial Services said in a notice to the stock exchanges.
“The proposed scheme and the applications filed in this regard with stock exchanges should be kindly treated as withdrawn.”
A similar statement was issued by HDFC: “Since the parties were unable to obtain the requisite regulatory approvals to consummate the proposed merger and other transactions contemplated under the said definitive agreements, the said definitive agreements stand terminated w.e.f. July 31st 2017 and parties will not be pursuing the proposed merger under the same.” Max and HDFC Life had said last month that they were evaluating alternate merger options.
“However, the inordinate time associated with finalisation and approval of these structures led to this decision,” Max Financial said. To be sure, HDFC Life CEO Amitabh Chaudhry told ET on Monday that the merger plan could be revived at a later date.
“Once we are done with our IPO, if Max Group is willing we obviously will be very happy to reengage with them in a conversation and move towards a merger but obviously both the parties have to be willing to do that and that is what we are hoping but only time will tell,” he said. HDFC Life and Max entered into an agreement to merge their life insurance companies in June last year. The insurance regulator objected to it in November.
PROPOSED FOUR-STEP MERGER
Max Financial Services was created as a result of a demerger of the erstwhile Max India in 2016 to provide investors access to the group’s life insurance business. The insurance regulator had objected to the original deal structure on the grounds that it proposed the union of an insurer with a financial services company. The plan involved holding company Max Financial Services first merging with Max Life. That was to be followed by a demerger of the life insurance business, which would subsequently be amalgamated with HDFC Life. The regulator referred the proposed structure to the finance ministry, which in turn sought the law ministry’s views on the matter. It referred the matter to the attorney general, who declined to give his opinion.
“The company will continue on its path to aggressively invest in organic and inorganic growth levers,” Max Financial Services said in the statement.
Max Life plans to invest in enhancing its agency and digital channels, leverage existing bancassurance partnerships and forge new distribution alliances.
HDFC Life is India’s third-largest life insurance company, while Max Life is the fourth by way of individual first-year premiums, adjusted for 10% of single premiums. Last week, Housing Development Finance Corp approved the sale of 9.57% stake in HDFC Life through an IPO in the coming months, becoming the third major life insurer to list on the stock markets.
Shares of Max Financial Services rose 0.71% to Rs 609.20 on Monday. HDFC gained 0.13% to Rs 1,786.15 on the Bombay Stock Exchange.