Chennai, (IANS) : The merger of Max Life Insurance Company Ltd with HDFC Standard Life Insurance Company Ltd has hit the regulatory block with the insurance regulator expressing reservations on the proposed scheme, Max Financial Services said on Saturday.
In a regulatory filing in BSE, Max Financial Services Ltd said the Insurance Regulatory and Development Authority of India (IRDAI) has expressed reservations to accept the scheme of amalgamation in its current form.
The application for merger of Max Life Insurance and HDFC Standard Life was filed with IRDAI for in-principle approval on September 21.
Max Financial Services said it believes that the scheme of arrangement as submitted to IRDAI is in compliance with all applicable laws and proposes to represent and clarify the matter to the sectoral regulator.
Earlier it was announced that the insurance business of two companies will be merged through a composite scheme of arrangement involving three entities.
First Max Life will be merged into Max Financial Services. The shareholders of Max Life will get one share of Max Financial Services for approximately five shares of Max Life.
“For the demerger of the life insurance undertaking from Max Financial Services into HDFC Life, shareholders of Max Financial Services (post the amalgamation with Max Life), will get 2.33 shares of HDFC Life for each share of Max Financial Services,” HDFC Standard Life said in a statement earlier.
According to HDFC Standard Life, the merged life insurance company will pay a non-compete fee to the promoter group of Max Financial Services.
As per the agreement, promoters of Max Financial Services will not compete in the same business space for years since the payment of an upfront non-compete fee of Rs 501 crore, to be paid on completion of the proposed merger transaction.
“This will be followed by three equal annual installments totaling Rs 349 crore,” HDFC Standard Life said.
HDFC Standard Life has also entered into a Trademark License Agreement to use the Max brand as part of life products that will transition from Max Life, for seven years post completion of the proposed transaction.
HDFC Ltd and Standard Life (Mauritius Holdings) 2006 Ltd will be the promoters of HDFC Standard Life the merged entity, post completion of the proposed transaction.
Upon obtaining all approvals, when the scheme becomes effective, the following steps will occur in that order:
– Max Life will merge into Max Financial Services
– Demerger of the life insurance undertaking from Max Financial Services into HDFC Standard Life (ie, the merged insurance entity)
– Merger of Max Financial Services (holding the residual business) into Max India.