In one of the biggest mergers in the insurance sectors, HDFC Life and Max India have decided to merge their life insurance businesses, which will create a company with ₹255 billion annual premium, making it the country’s largest private insurance company. The structure of the agreement has been slightly altered now. What stands now is that Max Life would be merged into Max Financial Services, which will then be de-merged into its insurance business and its other businesses. The insurance business will then be merged with HDFC Life, which would become a listed entity. The relative valuations of HDFC Life to Max Life will be 69 per cent and 39 per cent respectively.

As per the agreement, shareholders of Max Life will get one share of Max Financial Services for every 4.98 shares of Max Life. Similarly, the shareholders of Max Financial Services will get 2.33 share of HDFC Life for every share of Max Financial Services. There has also been a non-compete fee that has agreed upon, ₹501 crore, that would be paid upfront for a period of four years. This will then be followed by a total payment of ₹349 crore in annualised instalments. They have also entered into a trademark licence agreement to use the Max brand for the next seven years. In an interview to BTVI , HDFC Life Managing Director and CEO Amitabh Chaudhry says the transaction is expected to be completed in the next 12-15 months. The listing of the merged entity is expected 30-40 days after that. The merged entity is looking at a combined market share of about 10.5 per cent. Excerpts:

What would the merger mean for HDFC Life? What exactly are the contours of the deal? What does it mean for the shareholders?

We have to go by this transaction structure because as we did a detailed due diligence, we realised that certain conditions and liability are sitting in Max Financial Services has got nothing to do with the life insurance business. So there was no choice but to restructure it in this particular way.

It was also important to ensure that Max Financial Services shareholders get a direct shareholding in the life company rather than in an indirect way. To achieve all these objectives, we had no option but to create the structure in this particular way, which was agreed to by all the parties.

But the net effect of the structure has not really changed for the shareholders of either Max Life or HDFC Life or Max Financial Services. We are just going on a slightly different way than what we had planned before.

Can you explain the shareholding pattern in terms of what the promoters of HDFC and Standard Life would be holding individually? Also, how much will MFSI hold and how much will Analjit Singh hold after the merger?

The promoters of HDFC and Standard Life will end up holding 42.5 per cent and 24.6 per cent, respectively. Analjit Singh and his group will get 6.7 per cent and MFSI 7.8 per cent. These are the large shareholders. These are the promoters’ group holdings. The balance will be seen as public shareholders.