If Shareholders Oppose Non-Compete Fee, Will The HDFC Life-Max Life Merger Be Renegotiated?

BloombergQuintOpinion

It’s a mega merger, one that will create India’s largest private sector insurance company, listed at that.

In August, life insurance companies HDFC Life and Max Life announced the two will merge in a 3 step scheme.

First, the unlisted Max Life will merge into the listed Max Financial Services (MFS), and its shareholders will get 1 share of MFS for every 5 shares of Max Life.

Thereafter the life insurance business of the combined Max entity will be demerged and merged with HDFC Life. MFS shareholders will get 7 shares of the new HDFC Life for every 3 shares of MFS held.

As a result of the merger the new HDFC Life, the merged entity that is, will be owned 42.5 percent by HDFC, Standard Life will own 24.1 percent, the promoters of the Max Group will own 6.5 percent, Mitsui Sumitomo Insurance will own 7.8 percent and others, that is public shareholders, will own 19.1 percent.

In effect Analjit Singh and family retain almost 7 percent of the merged company - the new HDFC Life. Yet the shareholders of this new merged and listed entity will pay Analjit Singh a Rs 850 crore non- compete fee.

  • Is this non-compete fee justified?
  • And can somebody explain how the Rs 850 crore figure was arrived at?

The two companies - HDFC Life and Max Life did not respond to BloombergQuint’s queries.

In this discussion corporate lawyer and founder of Veritas Legal, Abhijit Joshi and Anil Singhvi, founder of governance advisory firm IIAS evaluate the options facing MFS’ non-promoter or dis-interested shareholders.

The non-compete fee will need approval of 51 percent of the votes cast by dis-interested shareholders. If shareholders vote against the non-compete fee, will the merger be renegotiated? There is no clarity on that issue as the Max Group did not respond to queries.

Disclosure: Anil Singhvi purchased 100 shares of Max Life after the merger announcement was made.