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Axis Bank-Max Life deal: Here are the contours of the proposed acquisition

The long-term intent of the partnership, according to the statement given to exchanges, is to merge Max Financial Services (MFS) with Max Life

April 28, 2020 / 03:23 PM IST
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Axis Bank and Max Life Insurance have entered into a deal where the former will acquire 29 percent stake in the life insurer. Both entities have announced a six to nine month time limit for the transaction to be completed.

Interestingly, the long-term intent of the partnership, according to the statement given to exchanges, is to merge Max Financial Services (MFS) with Max Life.

MFS is the holding company of Max Life and is listed on the stock exchanges. Currently, Max Financial Services presently holds 72.5 percent stake in Max Life. MFS does not engage in any other financial business except managing Max Life Insurance.

“Axis Bank and MFSL intend to create long-term value for all shareholders of Max Life by working towards a merger of the company with Max Life,” the statement said.

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In June 2016, when a proposal was presented to merge Max Life with HDFC Life, the structure was similar. First, Max Financial Services was to be merged with Max Life and then with HDFC Life.

However, insurance regulatory rules state a non-insurance company cannot merge with an insurance company. This was used as the reason to reject the merger between HDFC Life and Max Life.

Now when it comes to the Axis Bank deal with Max Life Insurance, the two entities have stated that should the merger not be completed by the pre-agreed timeline, the parties have contractually agreed on certain other outcomes.

“While there are insurance rules defining the type of mergers, necessary legal opinions have been taken prior to the deal. So, we are not expecting any roadblocks,” a source said.

As per the transaction documents filed with the stock exchanges, if the merger is not completed as per the timeline, both entities have agreed that there will be a right to swap Axis Bank’s shareholding with Max Financial. The tax consequence of which will be equally borne by the parties.

Further, the entities have also agreed that if the value creation options are not completed within 63 months from the closing, the transaction provides for a put option for Axis Bank.

While these 'value creation options' have not been publicly stated, some of it could include sales projections and fee income benefits for Axis Bank post the stake acquisition as well as the ability to cross-sell the bank's loans and other retail products to Max Life customers.

As per this put option, there can be a sale of all shares held by Axis Bank in Max Life at a price of Rs 294 per share (subject to adjustments) within nine months of exercise of such put option.

Once the transaction is completed, Axis Bank will have the right to nominate three directors and MFS will have the right to nominate four directors on the Max Life Board. One nominee director of the promoter group on the MFS board will be a person identified by Axis Bank.

The deal would have to be approved by both Reserve Bank of India and Insurance Regulatory and Development Authority of India. The respective legal teams of the banking and insurance regulator will also study the deal contours before giving their approval.
M Saraswathy
first published: Apr 28, 2020 03:23 pm
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