India’s HDFC Standard Life Insurance Co Ltd has begun talks to acquire smaller rival Max Life Insurance Co Ltd in an all-stock deal to create the nation’s top private-sector life insurer, kicking off consolidation in the $50 billion sector.
The companies approved entering into a “confidentiality, exclusivity and standstill agreement” to evaluate a potential combination through a merger of Max Life and its parent Max Financial Services into HDFC Life by way of a scheme of arrangement, according to a joint statement on Friday.
The talks could continue for about 60 days, HDFC Life Chairman Deepak Parekh told a news conference, adding the merger process could take a year to complete.
As part of the deal, Max Life will be merged into parent Max Financial Services, which in turn will merge with HDFC Life, making it a publicly traded company.
Britain’s Standard Life Plc owns a stake in HDFC Life, whose biggest shareholder is Indian mortgage lender Housing Development Finance Corp.
Japan’s Mitsui Sumitomo Insurance Co. Ltd is Max Financial Services Ltd’s joint-venture partner in Max Life, in which India’s third-biggest private sector lender Axis Bank also owns a small stake.
HDFC Life, which was planning an initial public offering of shares and had appointed merchant bankers, is keeping the IPO plan on hold, as the deal, if successful, will give it an automatic listing, executives said.
Insurers see plenty of room for growth in the world’s second-most populous nation of 1.3 billion, where relatively fewer people hold insurance policies.
However, strong competition and high capital requirements have seen the top players gaining market share and the smaller companies struggling.
In a market dominated by state-run Life Insurance Corp, the top four of the 23 private sector insurers account for 65 percent of the private sector insurance market, Parekh said.
HDFC Life is currently the third-biggest private sector life insurer in India, while Max Life is fourth-biggest. The combined entity will have 1 trillion Indian rupees ($15 billion) of assets under management.
HDFC Life will benefit from Max Life’s wider distribution network, Parekh said, adding they saw a lot of synergies between the companies.
Earlier this month, HDFC Ergo – a general insurance joint venture between HDFC and Munich Re – agreed to buy smaller rival L&T General Insurance for 5.51 billion rupees.