Due diligence report by RIL found valuations expensive.
Reliance Industries (RIL) has scrapped its plan to acquire Bharti’s stake in the life and general insurance joint ventures with French insurer AXA.
According to two independent sources, it is a direct fallout of a due diligence report conducted by RIL following the announcement of the deal in June. The due diligence report had highlighted some issues regarding compliance standards and found the valuations expensive. This played a key role in RIL’s decision to call off the deal. RIL and the two insurance companies — Bharti AXA Life Insurance Co and Bharti AXA General Insurance Co — in separate statements said the companies had jointly decided to terminate the deal.
In June, AXA and RIL said they had reached an understanding where the latter, along with its associate Reliance Industrial Infrastructure (RIIL), will acquire Bharti’s 74 per cent stake in both the ventures. While RIL decided to acquire 57 per cent, RIIL planned to buy the remaining 17 per cent of Bharti's stake in the two insurance companies.
The deal was cleared by the Competition Commission of India in July.
RIL had initially offered a premium of Rs 300-350 crore over the total capital infused by Bharti in the insurance joint ventures. The combined share capital of the two insurance companies was at Rs 1,948 crore as of March 31.
RIL, Bharti and AXA declined to comment specifically on these issues. RIL said the deal was “terminated as a result of the parties being unable to reach agreement on the long-term vision and joint governance of the ventures”.
Bharti AXA Life Insurance Co and Bharti AXA General Insurance Co did not offer any explanations on why the deal did not materialise. Both, however, said termination of negotiations with RIL would have no impact on their clients, distributors, partners and employees. “We will continue with business as usual,” the duo said in separate statements.
Data from the Insurance Regulatory and Development Authority in the first seven months of this financial year showed the life insurance firm’s new premium collection declined 51 per cent to Rs 106.30 crore, while the non-life company saw 54 per cent growth in premium income to Rs 459.45 crore. Punjab National Bank (PNB), the second largest government-owned bank in India, was earlier in the fray to acquire stake in Bharti-AXA’s life insurance venture. After Bharti finalised the deal with RIL, PNB acquired 30 per cent stake in MetLife India Insurance Co.
After the Ambani brothers scrapped non-compete agreement last year, RIL has been exploring opportunities to enter the financial services space. Consequently, it formed a joint venture with DE Shaw Group, a global investment and technology development firm to mark its entry in this segment. The proposed deal with Bharti, was aimed to strengthen its financial services foray.
