Merger talks between Japan’s Nippon Life and Birla Sun Life Insurance to jointly bid for Reliance Capital’s (RCap) stake held in its life insurance subsidiary failed after the former refused to dilute its stake. The talks were terminated ahead of the November 28 deadline to submit the binding bids.
In case of a merger, Nippon Life’s stake in Reliance Nippon Life Insurance Company (RNLIC) would have been heavily diluted and was likely to fall below 10%. The Japanese firm would lose all its shareholders and governance rights – such as nominating the CEO, board representations, audit committee memberships and veto rights – which it was not comfortable with, sources close to the development said.
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Nippon Life holds a 49% stake in RNLIC, which did not get any bid during the initial stages of the insolvency process, while the remaining 51% is held by RCap. The talks were initiated after RCap’s administrator had invited bids for RCap’s stake in RNLIC, which did not get any interest during the initial stages of the insolvency process.
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Nippon Life is more comfortable with 51% stake being acquired by someone like Hinduja Group, which is the bidder for RCap under option-I (looking to acquire RCap as a core investment company) of the resolution plan. Birla Sun Life was the latest entrant to bid for RNLIC through the resolution process.
Earlier, the companies had initiated talks on the proposed merger, as present Irdai guidelines do not permit an entity to hold stakes in two life or non-life insurance entities. The proposed merger with Birla Sun Life Insurance, an Aditya Birla group company, would have enabled the merged entity to bid for RCap’s stake in RNLIC.
According to sources, Nippon Life and Birla Sun Life Insurance would still be interested in bidding for RNLIC. Initially, Nippon Life had no plans to pare its stake in RNLIC, and was looking to rope in a strategic partner to acquire RCap’s stake in RNLIC. It was also exploring partnership options.
According to sources, Birla Sun Life was being valued at about Rs 10,000 crore and that of RNLIC was pegged at about Rs 5,000 crore at the time of the merger talks. If the merger plans succeed, the Japanese firm will have to bring down its stake to below 15% in the merged entity.