HDFC Life Insurance Company Ltd and Max Life Insurance Company Ltd proposed merger talks appeared to be in jeopardy with news reports saying that both have postponed the deadline for the merger talks till 31 July, with one report saying that the merger may be called off altogether. The original deadline to conclude the deal between HDFC life and Max Life expired on 30 June.
Both the companies are now working on a new merger structure after the insurance regulator, IRDAI rejected the original three-step union, the Mint newspaper reported. Also, HDFC Life’s shareholders want to push ahead with listing plans and a merger is likely to delay that by at least a year, The Economic Times reported citing unidentified sources.
Earlier in June 2016, the three-way merger between HDFC Life, Max Life and Max Financial was proposed. HDFC Life is a joint venture between HDFC Ltd and Standard Life while Max Financial, the listed firm owns a little less than 70% stake in Max Life. However, the merger proposal was rejected by the regulator, Insurance Regulatory Development Authority of India (IRDAI) on the grounds that an insurance company cannot merge with a non-insurance company.
Under the new structure, Max Life and HDFC Life will merge to form a new company, tentatively called HDFC Plus. This new company will then incorporate a new subsidiary to which it will transfer the insurance business, Mint said in a report, adding that, this effectively means HDFC Plus will become a holding company for the insurance business and be free to merge with the listed Max Financial Services (after it spins off its residual non-insurance businesses).
The stocks of HDFC twins fell on the news and were trading in the red. On BSE, shares of HDFC Ltd fell 1.05% to Rs 1,639 while HDFC Bank was down 0.43% at Rs 1,674.
This new proposed M&A structure avoids the insurance regulator’s objection to an insurance company merging with a non-insurer. As per Section 35 of the IRDA Act, an insurance company cannot merge with a non-insurance company. However, if the merger goes through, then it will create India’s largest private-sector insurer.