The share price of Axis Bank gained 5 percent in the morning trade on April 28 after the private lender said it would acquire a 29 percent stake in Max Life Insurance Company. The bank is also to announce its March quarter numbers later in the day.
"The board of directors on April 27 has approved entering into an agreement with Max Financial Services (MFSL) to acquire 29 percent stake in Max Life Insurance Company," the country's third largest private sector lender said.
It would acquire shares from Max Financial Services, which holds 72.5 percent stake in Max Life, and sign a shareholders and a share purchase agreement.
The transaction is subject to the satisfaction of conditions precedent, including receipt of regulatory approvals from the Reserve Bank of India, the Insurance Regulatory and Development Authority of India and the Competition Commission of India, among others.
"We continue to believe in the long term prospects of India's under-penetrated life insurance space, current environment notwithstanding. We see this joint venture creating immense value for our stakeholders given our long standing, high performing partnership with Max Life," Amitabh Chaudhry, MD and CEO, Axis Bank said.
Max Life Insurance reported a turnover of Rs 19,987 crore for the financial year ended March 2019, registering a 19 percent growth over Rs 16,789 crore in FY18.
"The acquisition of stake in Max Life Insurance Company will not fall within the related party transaction. Shares will be acquired from the listed parent entity of the target company i.e. from, Max Financial Services," Axis Bank said in its BSE filing.
The acquisition will help the bank strengthen its position in life insurance industry and allow the bank to engage in insurance business, it added.
The private lender is expected to complete the acquisition in the next six to nine months.
Max Financial Services presently holds a 72.5 percent stake in Max Life and Mitsui Sumitomo Insurance (MSI) owns 25.5 percent stake. Axis Bank also has a minor stake in the life insurer.
After the deal, Max Life (the fourth largest private life insurer in India) would be 70:30 joint venture between Max Financial Services and Axis Bank, the bank said.
The bank further said, "The transaction with Axis Bank follows the ongoing swapping by MSI of 20.6 percent stake that it holds in Max Life with a 21.9 percent stake in Max Financial. Max Financial also plans to purchase MSI's balance stake in Max Life."
Post completion of the series of transactions, fourth largest private life insurer Max Life will become a 70:30 joint-venture between Max Financial and Axis Bank.
"This move is an emphatic signal that Max Life will become an even more formidable player in the Indian life insurance space. We at Max Group have had a long standing record of having successful joint ventures," Analjit Singh, Founder and Chairman at Max Group said.
He believes that in Axis, Max Financial has found an exceptional partner and has conviction that this will make Max Life undamentally stronger, better performing and will bring stability to the franchise.
Upon the closing of the transaction, Axis Bank said it would have the right to nominate 3 directors and Max Financial would have the right to nominate 4 directors on the Max Life board.
"One nominee director of the promoter group on the board of Max Financial shall be a person identified by Axis," it added.
The private sector lender said both (Axis and Max Financial) intended to create long term value for all shareholders of Max Life by working towards a merger of the company with Max Life.
"Should the merger not be completed by a pre-agreed timeline, the parties have contractually agreed on certain other outcomes including the right to swap up Axis Bank's shareholding to Max Financial, tax consequence of which will be equally borne by the parties," said the bank.
If the Value Creation Options are not consummated within 63 months from the closing, the transactions provide for a put option for Axis Bank on the company to sell all shares held by Axis Bank in Max Life at a price of Rs 294 per share (subject to adjustments mutually agreed between parties) within 9 months of exercise of such put option, it added.
Axis Bank and Max Life have had a successful business relationship for over a decade, providing long term saving and protection products to over 19 lakh customers.
"The total premium generated through this relationship has aggregated to over Rs 38,000 crore. Both companies have invested extensively in product and need-based sales training, thereby leading to consistent increase in productivity," the lender said.
Axis Bank share price was quoting at Rs 442.20, up Rs 14.90, or 3.49 percent, but Max Financial Services was down 0.18 percent at Rs 451.75 on the BSE.