HDFC Life Insurance Company has decided to convene an extraordinary general meeting (EGM) on 29 September 2021, seeking shareholder’s approval for the Exide deal. Under this Rs. 6,687 crores deal, HDFC Life, will acquire 100% share capital of Exide Life after paying the promoter Exide Industries Rs. 725.98 crores in cash.
This EGM will be held via video conferencing or other audio-visual means to decide on the issuance of equity shares on a preferential basis to Exide Industries Ltd. The successful conclusion of this meeting would let HDFC move on with its two-step plan for the complete acquisition and merger of Exide Life.
Now let’s take a look at various details of the acquisition to see if it will get approval from shareholders.
HDFC Life announced one of the biggest insurance deals in India on 3 September 2021, involving the acquisition of Exide Life Insurance. With this deal, HDFC wants to beef up its distribution network and gain a foothold in South India.
HDFC will acquire a 100% stake in Exide Insurance via issuing its 8,70,22,222 equity shares for Rs. 685 per share to Exide Industries. This transaction will give Exide Industries a 4.1% stake in HDFC Life. This deal also involves a cash pay-out of Rs. 726 crores to Exide Industries, totalling Rs. 6,687 crores in payment.
HDFC expects that the acquisition will accelerate the growth of its business. It will boost HDFC’s agency network by 40% and add a 38% channel business on an annual premium equivalent (APE) basis.
With 50% of its business coming from the southern states, the merger of Exide Life will also allow HDFC to gain a strong geographical presence there. The traditional and protection-focused business will provide HDFC access to a wider market, especially in Tier 2 and Tier 3 towns.
The process of the merger can go ahead after obtaining clearance from the following regulatory bodies:
The merger will also need the approval of the shareholders of both companies. It’s expected to be fully completed by 30 June 2022.
As of 30 June 2021, Exide Life had a customer base of 1.2 million, mostly in South India. The Life Insurance Company has total assets worth over Rs. 18,781 crores and a total premium income of over Rs. 3,325 crores in FY20-21. To date, Exide Industries, the promoter of Exide Life, has made a total investment worth Rs. 1,680 crores in its life insurance business.
HDFC Life has demonstrated a strong financial performance so far, justifying its premium valuation. As of 31 July 2021, the company has a market share of 8% in terms of new business premium. Over the past three years, HDFC Life’s business growth has been at a stellar 17%, significantly higher than the 3% average attained by the life insurance industry.
After the announcement of the merger, the investors of HDFC Life were not particularly pleased. The shares of HDFC Life Insurance Company fell by 3% to Rs. 728.55 apiece during the opening hours of trade on 3 September. On the other hand, the shares of Exide Industries went up by 9% to Rs. 194.5 per share.
According to analysts, the market sentiment is that HDFC Life is paying more while Exide Life is gaining more. HDFC performed very well throughout the pandemic, adding the highest number of agents, while Exide’s growth, market share and margins were much lower. As a result, many investors are concerned about the high value of the deal and if it’s a costly bet.
Though in the near term, HDFC Life’s metrics may be pulled down slightly, the company expects to make it up in coming years. Exide Life’s acquisition will boost its agency network by two to three years compared to organic growth. Over time the company also expects Exide’s cost overruns, product mix and underwriting standards to improve. Only time will tell how much HDFC Life will benefit from this acquisition.
As of right now, HDFC Life has called for a general meeting for all its shareholders to get approval for the merger.
After getting shareholders’ and regulatory bodies’ approval, HDFC will be issued 87 million shares of Exide Life. This will let it complete the acquisition of Exide Life and subsequent merger.
Investors of HDFC felt that the Exide deal was too costly a bet as the company’s growth and market share were not particularly impressive. As a result, its stock price fell slightly following the deal’s announcement.
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