HDFC Life-Max Life merger on hold again as IRDA denies permission

Highlights: 

• Max Life enters in scheme of amalgamation with HDFC Life on August 08, 2016
• IRDAI says Max Life-HDFC Life merger violates Section 35 of Insurance Act 1938
• This deal was expected to create first life insurers with market  valuation of Rs 50,000 crore

The Insurance Regulatory and Development Authority of India (IRDAI) has turned down the merger proposal of Max Life Insurance and HDFC Standard Life Insurance stating it violates Section 35 of Insurance Act 1938.

As per IRDA, the representations made by these two companies for the merger violated Section 35 which does not allow an insurance company to merger with a non-insurance firm.

In a BSE filing on Thursday, Max India said, “Further to the representations made to IRDA has on June 07, 2017, reaffirmed its original position regarding Section 35 of Insurance Act 1938.”

Max India further added, “HDFC Life and Max Life remain committed to the merger and are evaluating various options.”

On November 12, 2016, Max Life, Max Financial Services, HDFC Life and Max India informed about the decision to IRDAI and asked for further representation before the regulatory.

In the same month, IRDAI had referred the deal to the Union law ministry after raising concerns on the structure of the deal which was against Section 35.

Board of Directors of the above four companies  gave their approval on August 08, 2016.

The scheme involves that the life insurance business of Max Financial, currently held through Max Life, would be finally amalgamated with HDFC Life and all other business of Max Financial would be finally amalgamated into Max India Limited.

As per the agreed valuation and exchange ratio, the relative valuation of HDFC Life and Max Life would be 69% and 31%, respectively. 

The shares of HDFC Life are proposed to be listed on BSE Limited and the National Stock Exchange of India Limited as a consequence of the Scheme. 

The shareholding of the Corporation in HDFC Life post completion of the proposed transaction would be 42.5% and consequently HDFC Life would cease to be a subsidiary of the Corporation.

This merger was expected to be among the first life insurers in over decades to create a firm with market value of about Rs 50,000 crore, ahead of ICICI Prudential. However, it will be still the second after LIC who hold Rs 25 lakh crore industry with 70% share.