On Friday 3rd September 2021, HDFC Life India’s largest private insurer announced the acquisition of 100% share capital of Exide Life Insurance Company for Rs. 6,687 Cr. How this deal plays a crucial role in the Life Insurance Sector, what are the other details of the deals, and what are the points to look at? Know it all in this brief article.
HDFC Life, a subsidiary of HDFC Limited and the largest private insurance company in the country has announced on Friday 3rd September about the Board Approval for the acquisition of Exide Life Insurance for the total consideration of Rs. 6,687 Cr. This will not be a cash deal, but HDFC Life will acquire 100% share capital of Exide Life Insurance.
HDFC Life-Exide Life Insurance Deal:
- HDFC Life will be acquiring a 100% stake in Exide Life Insurance for the cash payment of Rs. 726 Cr. and the rest amount of the deal will be made through the issuance of 8,70,22,222 Shares of HDFC Life amounting to Rs. 5,961 Cr. The Share will be issued at Rs. 685 per share. Total Deals including Cash Payment and Issuance of Shares amounts to Rs. 6,687 Cr.
- The process of the merger will be commenced once the acquisition process is completer.
- Post this deal, HDFC Life will now be able to strengthen its position in Southern India. This will ultimately help the company to expand its presence across the country.
- HDFC Life said that the embedded value of Exide Life, as of 30th June 2021 is Rs. 2,711 Cr. and has been reviewed by Willis Towers Watson Actuarial Advisory LLP.
- Exide Life had a customer base of around 12 Lakh and assets of more than Rs. 18,780 Cr. as of June 30, 2021.
- In the filing, HDFC also said that HDFC Life’s scale, market-leading digital and product innovation capabilities, and prudent risk management strategy will aid in optimizing cost and over time, achieve higher margins for the acquired business. HDFC Life further added that the proposed transaction will accelerate the growth of its agency business, as well as strengthen other distribution channels including Broker, Direct, and Co-Operative Banks.
- In terms of premiums, HDFC Life owns an 8% market share in the Indian Life Insurance Industry, against 65% of the biggest player-LIC. Exide Life only had a market share of 0.34%.
Stock Market Reaction:
- On Friday, the stock price of Exide Industries, the parent company of Exide Life Insurance surged by around 15% while the stock price of HDFC Life Insurance was down by around 2%-3%.
- The stock of HDFC Life went down on this news because the market was expecting this deal to be closed around Rs. 5,000 Cr., but ended up at Rs. 6,687 Cr. 34% more than the estimated deal price.
- On the contrary, this deal is beneficial for Exide Industries at least for the shorter period as the company was rewarded with more price for its insurance business than it was expected.
- Also, the market is expecting that Exide Industries can now more focus on its Battery Business. But on the other hand, Exide Industries was gaining an extra edge on its business, due to its Life Insurance Business, but post this deal, the company might lose this edge from a longer view.
Looking at the prospect in the Life Insurance Sector, this deal might be very fruitful for HDFC Life from a longer horizon point of view, despite the market has been reacting negatively to the deal price. While Exide Industries may enjoy some momentum drive due to the high deal price it received for its Life Insurance Business but may suffer a bit in the longer term. Do not invest based on news and do proper research before making any investment decision or consult a financial advisor.