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Axis Bank and Max Financial Services Limited (MFSL) on Tuesday announced the signing of definitive agreements to become joint venture partners in Max Life Insurance Company Limited (Max Life).
The private sector bank will hold a 30 per cent stake in Max Life post the completion of the transaction, which is estimated to take six to nine months to be completed.
“The board of directors, at its meeting held on April 27, has approved entering into an agreement with Max Financial Services Limited (MFSL) to acquire a 29 per cent stake in Max Life Insurance Company,”Axis Bank said in a regulatory filing, adding that this will amount to purchase of 55.64 crore shares.
Though it did not disclose the value of the transaction, it is believed to be worth ₹1,600 crore.
Foothold in insurance space
The move will enable Axis Bank, which is the third-largest private sector lender, to get a firm foothold in the insurance sector. Max Financial Services, too, had been scouting for another shareholder for Max Life.
“The development will result in a mutually beneficial and enduring relationship between Axis Bank and Max Life, and bring the stability of a long-term partnership to India’s fourth largest private life insurance franchise,” Axis Bank said in a statement, adding that the joint venture arrangement will significantly improve Max Life’s competitive position vis-a-vis its competitors, including the other large bank-owned private life insurers.
The three companies had signed a confidentiality and exclusivity arrangement on February 20 this year to explore a long-term strategic partnership between Axis Bank and Max Life.
At present, Max Financial Services holds a 72.5 per cent stake in Max Life and Mitsui Sumitomo Insurance owns a 25.5 per cent stake. Axis Bank also has a minor stake in the life insurer.
Analjit Singh, Founder and Chairman, Max Group, said: “This move is an emphatic signal that Max Life will become an even more formidable player in the Indian life insurance space.”
In a media call, Amitabh Chaudhry, Managing Director and CEO, Axis Bank, said: “Given the potential upside in the partnership and the low impact on our capital, it does make sense to go forward with this,” he said, adding that there is no plan for a total acquisition as of now. The deal is subject to regulatory approval.
Upon the closing of the transaction, Axis Bank will have the right to nominate three directors and MFSL will have the right to nominate four directors on the Max Life board. One nominee director of the Promoter group on the board of MFSL shall be a person identified by Axis Bank.
Significantly, if the value creation options are not tapped within 63 months from the closing, the transaction provides Axis Bank a put option on the company: it can sell all shares held in Max Life at a price of ₹294 per share within nine months of exercising the put option.
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