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 Economic Times - - Front Page - Our Bu­reau

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.

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