Birla Sun Life, Max Life initiate merger talks; new life insurance giant could soon be in the making

PUNE, India - Sept. 21, 2017 - PRLog -- Analjit Singh led Max Financial Services is in talks with Aditya Birla Group to explore a merger of their life insurance businesses, Birla Sun Life and Max Life Insurance with the aim to create one of the top 3 private life insurers in the country, said multiple sources aware of the discussions.

Parallely, the Delhi based serial entrepreneur is also believed to be negotiating with UK-based Northern Trust which manages a trillion dollar of assets and PE firm Apax Partners to sell his promoter stake of 30 percent in Max Financial Services.

These negotiations are at an early stage and the various groups are examining the regulatory contours but gathered momentum after HDFC Standard Life Insurance Co. Ltd and Max Life Insurance Co. Ltd called off their proposed merger end July, failing to win regulatory approval for a union that would have created an insurance giant with Rs1.1 trillion in assets.

However, the sources mentioned above warned that these discussions may not gaurantee a transaction.

Birlas have been on the lookout for scaled franchise for long while Singh has been open to monetising his investments. The key rationale for exploring a merger is the fact that Birla Sun Life does not have large bank partners which Max has in the form of Axis and Yes -- the third and fourth largest private bank in the country. Even though in the last one year, Birla Sun Life have managed to tie up with six banks, they are all much smaller.

"Birla-Max discussions are ongoing at a shareholder level to work out the correct structure. It has not yet reached a board level," said an official in the know on condition of anonymity as the talks are in private domain. "Increased scale can potentially yield to benefits of cost synergies as well as multi-channel distribution, through agencies, brokers, direct marketing and bancassurance," he added. Absence of a strong Banca partner has been hurting Birla Sun Life's distribution with premium mix shifting towards group business (62% contribution in FY17). In Q1FY18, as per its management, new business premium saw 33-34% growth driven by retail segment.

"We expect more bank-insurance tie-ups, beyond the top four banks. .. Max has option to either partner with these (beyond top four) banks or explore an M&A option," wrote analysts with Kotak Institutional Equities last month.

Cyril Amarchand Mangaldas is believed to be involved as a legal advisor in the ongoing Birla-Max negotiations.

PE players like Apax – having invested $1.5 billion since opening India office in 2007 with plans to deploy another billion in the next 4 years -- has historically been strong backer of financial services firm having backed Shriram City Union Finance, CholamandalamBSE -1.02 % Finance as well as insurance brokerages Assured Partners, Hub International worldwide.

Also Read: BIRLA Group Restructuring Deal Updates (https://mnacritique.mergersindia.com/aditya-birla-grasim-...)

Northern Trust too has been looking to invest in financial services in India. They had in the past explored opportunities in asset management business but did not invest.

Spokespersons of Max Financial, Aditya Birla Group declined to comment on speculation. Mails sent to Apax Partners and Northern Trust did not get a response till press time.

The MFS stock has appreciated a little over 8% in the last 1 month.

Birla Sun Life is a 51:49 JV between Aditya Birla Capital Limited (ABCL) and Canada's Sun Life. Max Financial Services was formed in January 2016, as the result of a three-way demerger of Max IndiaBSE 0.02 %. MFS is the holding company for Max Life, India's largest non-bank promoted private life insurance company. MFS currently holds 69% stake in Max Life, its Japanese partner Mitsui Sumitomo owns 25% with Axis BankBSE -1.38 % owning 4.9% of the venture. The remaining 1% is held through management ESOPs.

According to sources, one of the structures being explored is a plain merger of the two operating life insurance businesses and a subsequent change in the shareholding with Aditya Birla Capital buying out Singh and his partners either partially or entirely....

Alternatively, ABCL or any of the other suitors can buy into MFS and trigger an open offer, following which the operating companies and their listed holdcos can merge. The promoters Analjit Singh and family control 30.42 percent of MFS.

"Typically the regulator prefers mergers. So IRDA is unlikely to allow 2 entities with 2 licences with the same set of shareholders. It would be far easier to merge the businesses and then realign shareholding," said a Mumbai based senior legal source specialising in insurance mergers.

The challenges, feel analysts, will be agreeing on any non-compete fee and locking in Axis -- the key value creator -- in the merged entity.

During the three-way merger discussions the promoters of MFS had negotiated an Rs 850 crore non-compete fee from HDFC Life as a condition for the deal...Continue to read (https://mnacritique.mergersindia.com/news/birla-sun-life-...)!!