HDFC Life to Acquire Exide Life Insurance: The private sector life insurer, announced on Friday that it will buy a 100 per cent stake in Exide Life Insurance Company from Exide Industries Ltd (EIL) for Rs 6,887 crore and thereafter merge it with HDFC Life, subject to regulatory approvals.
HDFC Life would pay Rs 725 crore in cash for Exide Life Insurance and the remaining Rs 6,887 crore by issuing 87.02 million equity shares of the firm with a face value of Rs 10 and a price of Rs 685 per share to Exide Industries Limited, Exide Life Insurance’s holding company.
Exide Life’s total investment in EIL was Rs 1679.59 crore as of today.
Following the transaction, Exide Industries will acquire a 4.1 per cent share in HDFC Life, while HDFC Ltd, which currently owns 49.9% of the company, would have its stake reduced to 47.9%.
This is one of the earliest and largest purchases in the life insurance industry, which now includes 23 private insurers and one state-owned insurer, Life Insurance Corporation (LIC).
HDFC Life has planned to buy Max Life in the past, but the acquisition fell through due to regulatory issues. This deal, however, is not expected to face any such regulatory problems, according to experts.
In October 2005, Reliance Capital, the Anil Dhirubhai Ambani Group’s NBFC subsidiary, purchased the whole investment in AMP Sanmar from Australian insurer AMP and the Sanmar group for just over Rs 100 crore.
HDFC Life to acquire Exide Life Insurance will be the first acquisition in the life insurance industry in 16 years.
In a statement, HDFC Life, one of the largest private insurers in the life insurance space, said, “The proposed transaction will accelerate the growth of the agency business of HDFC Life.
Exide Life complements HDFC Life’s geographical presence and has a strong foothold in South India, especially in Tier 2 and 3 towns, thus providing access to a wider market”.
Following the acquisition, HDFC Life’s agent base will rise by 36,700 agents, bringing the total number of agents to 144,605 from the existing 107,895.
In addition, the high quality of HDFC Life’s primarily traditional and protection-focused business will add about 10% to the company’s current embedded value. Exide Life has an embedded value of Rs. 2,711 crore as of June 30.
The time it takes to receive all clearances, including those from interested regulators, determines when the transaction will be completed. The deal, however, is expected to be completed by June 2022.
“The proposed transaction will give customers access to a wider bouquet of products and service touchpoints. Employees and agents will benefit from a larger, stronger organisation that realises the synergies arising out of complementary business models built on similar ethos”, HDFC Life said in a statement.
Exide Life Insurance received Rs 3,325 crore in premiums in FY21. As of June 30, 2021, it had Rs 18,870 crore in assets under management. Exide Life reported revenue of Rs 4,937.46 crore and a net value of Rs 1,481.42 crore for the fiscal year ended March 2021.
Following the announcement of the purchase, HDFC Life’s stock is trading 3% down at Rs 735.90.
On the proposed acquisition, Deepak Parekh, chairman, HDFC Life said, “This is a landmark transaction, first of its kind, in the Indian life insurance space. It would enhance insurance penetration and further our purpose of providing financial protection to a wider customer base.”
According to an industry analyst, insurance is a capital-intensive business by nature, thus it is up to management to decide whether to inject capital into the company at regular intervals or to sell it lock, stock, and barrel.
We may see promoters of smaller companies leaving the field by selling their stakes to foreign companies, as foreign direct investment in the insurance sector has climbed to 74%.
