HDFC Life Insurance on Friday said it would acquire a 100 per cent stake in Exide Life Insurance in a cash-and-stock deal that will consolidate its presence as the leading private player in life insurance. The total consideration of the buyout is Rs 6,687 crore: issue of 8.7 crore preference shares for Rs 685 apiece by HDFC Life to Exide and a cash payout of Rs 726 crore.
In the first part of the deal, Exide will pick up a 4.1 per cent stake in HDFC Life. The second part involves the merger of the business of Exide Life with HDFC Life. Mortgage lender HDFC’s stake in HDFC Life will come down to 47.9 per cent from 49.9 per cent. The total investment of Exide into Exide Life Insurance is Rs 1,679.59 crore as per regulatory disclosures.
The closure of the proposed transaction will be subject to regulatory approval as well as approvals by the shareholders of HDFC Life and Exide Industries. The combined entity will have an embedded value of Rs 30,042 crore with total assets under management of over Rs 2 lakh crore. The combined entity will also command a market share of 16.8 per cent on individual weighted received premium.
Deal rationale
HDFC Life said the acquisition significantly strengthens its agency business. HDFC Life will be able to add 36,710 agents of Exide Life taking its overall agent strength to 144,605.
The other benefit lies in the genesis of Exide Life. Exide is a leading brand in the automotive and industrial battery segment. The company had invested in life insurance in 2005 acquiring a 50 per cent stake in ING Vysya Life Insurance. Following ING’s decision to exit the life insurance business in India, Exide had acquired the remaining stake and the company was renamed as Exide Life Insurance. While insurance was not the core business of Exide, it nevertheless had a significant presence in south India, especially in the smaller cities because of its ING Vysya roots.
HDFC Life generated 21 per cent of its business in the first quarter from agency, brokerages and other channels. The remaining 79 per cent was from bancassurance and direct sales, with bancassurance constituting more than half of the business channel mix. The acquisition will help the insurer to diversify its channels and expand its presence in the southern markets.
Vibha Padalkar, MD & CEO, HDFC Life, said, “We believe that this amalgamation can result in value creation for customers, employees, shareholders and distribution partners. It gives us an opportunity to realise synergies arising out of complementary business models, and further bolster our proprietary distribution network.”
Rajan B. Raheja, vice-chairman, Exide Industries and chairman, Exide Life Insurance, said, “The focus of Exide Industries has always been to enhance the value for its stakeholders. The proposed transaction is another step taken by us to meet the above stated objective.”
While HDFC Life tumbled 3.21 per cent on the BSE on Friday, Exide Industries was up 6.34 per cent.
