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HDFC Life Insurance Company (HLIC) on Friday announced the acquisition of 100 per cent share capital of Exide Life Insurance Company for a total consideration of ₹6,687 crore.
This move comes about four years after the proposed merger of Max Life with HDFC Life was called off as it did not pass muster with the insurance regulator.
Of the total consideration, ₹725.97 crore will be payable in cash and the balance by way of issue of about 8.7 crore equity shares of HDFC life, with a face value of ₹10, issued at ₹ 685 a piece to Exide Industries Ltd (the holding company of Exide Life), HDFC Life said in a regulatory filing.
The issue of shares to Exide Industries will be on a preferential allotment basis for non-consideration. The completion of the proposed issue is subject to shareholder approval and subject to receipt of all regulatory approvals.
HDFC Life is acquiring Exide Life at about 2.47 times the latter’s embedded value (EV) of ₹2,711 crore (as at June-end 2021). EV is the value of business currently on an insurer’s books. Upon completion of the transaction, Exide Industries will hold 4.1 per cent in HDFC Life.
Vibha Padalkar, MD & CEO, HDFC Life, said the transaction will be a two-step process, with Exide Life first becoming a subsidiary of HDFC Life by December/January. Thereafter, depending on NCLT approval, which could take up to nine months, Exide Life will be merged with HDFC Life. She emphasised the subsidiarisation of Exide Life will help HDFC Life gain control of its business, making value preservation easier.
Use of Exide brand
Padalkar said that as part of the deal, HDFC Life is allowed to use the Exide brand for two years until it is transitioned out. The Assets Under Management (AUM) of HDFC Life is expected to increase by approximately 10 per cent, taking it beyond ₹2-lakh crore, she added.
Exide Life posted a turnover (total premium for FY 2020-21) of ₹3,325 crore (₹3,220 crore for FY2019-20). Its AUM as on June 30, 2021, totalled ₹18,780 crore, per the filing.
In a joint statement, the two companies said: “Exide Life complements HDFC Life’s geographical presence and has a strong foothold in South India, especially in Tier 2 and 3 towns, thus providing access to a wider market. Further, a good quality, predominantly traditional and protection focussed business, will augment the existing embedded value of HDFC Life by approximately 10 per cent.”
‘Landmark transaction’
Deepak S Parekh, Chairman, HDFC Life, said, “This is a landmark transaction, first of its kind, in the Indian life insurance space. It would enhance insurance penetration and further our purpose of providing financial protection to a wider customer base.”
The shares of HDFC Life were down 3.21 per cent to close at ₹734 a piece on Friday on the BSE. Exide Industries shares were up 6.3 per cent at close on Friday on BSE. “One of the major sticking points with investors in relation to Exide Industries was its investment in non-related life insurance business. This issue seems to be now resolved and should lead to significant re-rating of the stock,” said analysts at Investec Securities
Exide Industries had recently announced its intention to foray into lithium-ion cell manufacturing over and above its existing battery pack manufacturing plant at Gujarat in partnership with Leclanche of Switzerland. The proceeds from the sale of Exide Life should help fund the capital requirement
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