HDFC dropped and Max Financial Services rose amid volatility at 9:54 IST on BSE after the boards of these two firms approved a scheme of amalgamation between HDFC Standard Life Insurance Company, Max Life Insurance Company and Max Financial Services.
Shares of HDFC were down 0.68% at Rs 1,358.20. The stock hit a high of Rs 1,375 and a low of Rs 1,356 so far during the day.
Shares of Max Financial Services (Max Financial) were up 0.15% at Rs 543.10. The stock hit a high of Rs 547.60 and a low of Rs 515.25 so far during the day. The company's net profit surged 333.15% to Rs 107.12 crore on 228.19% growth in total income to Rs 131.90 crore in Q1 June 2016 over Q1 June 2015. The result was announced after market hours yesterday, 8 August 2016.
Meanwhile, the S&P BSE Sensex was down 5.94 points or 0.02% at 28,176.63.
The board of directors of HDFC and Max Financial at their board meetings held yesterday, 8 August 2016, approved entering into definitive agreements for amalgamation of businesses between HDFC Standard Life Insurance Company (HDFC Life), Max Life Insurance Company (Max Life) and Max Financial Services (Max Financial) through a composite scheme of arrangement. As a part of the proposed transaction, the life insurance business of Max Financial, currently held through Max Life, would be finally amalgamated with HDFC Life and all other business of Max Financial would be finally amalgamated into Max India. The shares of HDFC Life are proposed to be listed on BSE and the National Stock Exchange of India (NSE) as a consequence of the scheme. Pursuant to the scheme and subject to receipt of the requisite approvals, the shareholding of HDFC in HDFC Life post completion of the proposed transaction would be 42.5% and consequently HDFC Life would cease to be a subsidiary of HDFC.
For the merger of Max Life into Max Financial, shareholders of Max Life will get one share of Max Financial for approximately five shares of Max Life. For the demerger of the life insurance undertaking from Max Financial into HDFC Life, shareholders of Max Financial (post the amalgamation with Max Life), will get 2.33 shares of HDFC Life for each share of Max Financial.
As a part of the proposed transaction, in consideration of the non-compete and non-solicitation obligations undertaken by the promoter group of Max Financial, and for the goodwill attached to the life insurance products and the business of Max Life, the merged insurance entity will be paying a non-compete fee to the promoter group of Max Financial. The term of non-compete would be 4 years since the payment of an upfront fee of Rs 501 crore which will be payable post completion of the proposed transaction. This will be followed by three equal annual installments totaling Rs 349 crore.
Max Financial will seek an upfront approval of its public shareholders (greater than 50% of the votes cast) for payment of the non-compete fee and Max Life will seek consent from its shareholders holding more than 75% stake for the proposed transaction. Separately, Max India will also seek an upfront approval of its public shareholders for the proposed transaction.
HDFC Life has also entered into a trademark license agreement to use the 'Max' brand as part of life products that will transition from Max Life, for seven years post completion of the proposed transaction.
HDFC and Standard Life (Mauritius Holdings) 2006 Ltd. will be the promoters of HDFC Life the merged entity, post completion of the proposed transaction. HDFC will cease to be the holding company of HDFC Life post completion of the proposed transaction and will hold about 42.5% of HDFC Life (based on shareholding as on 30 June 2016).
The proposed transaction brings together two large life insurance players with complementary capabilities. The merged insurance entity on pro-forma basis has a combined market share of 10.8%, in an extremely competitive life insurance market. The product mix of HDFC Life and Max Life complements each other.
The proposed transaction is expected to become effective in the next 12-15 months.
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