New Delhi: Mitsui Sumitomo Insurance Company (MSICL) of Japan on Thursday acquired a 26% stake in Max New York Life (MNYL), the country's fourth largest private life insurance company, for Rs 2,731 crore.
Under the deal, US partner New York Life (NYL) sold its entire 26% stake in the MNYL. Max India got a net cash flow of Rs 802.2 crore, while its stake remained at 70%. Share prices of Max India rose by around 8.5% to close at Rs 204 on BSE after the deal.
In the first phase of the deal, the Indian partner Max India acquired 9.4% equity of MNYL from foreign partner NYL at par value for Rs 182.3 crore. In the second phase, Max India sold 9.4% stake in MNYL to MSICL for Rs 984.5 crore. So, Max India made a pre-tax profit of Rs 802.2 crore. In the third part of the transaction, NYL sold its remaining 16.6% stake in MNYL directly to MSIC for Rs 1,747 crore.
The total consideration of Rs 2,731 crore for 26% values MNYL at Rs 10,504 crore, which is 3.3 times of its embedded value. The Rs 802.2 crore that the Max India got in the transaction is for its instrumental role in developing the company as the majority partner since the inception of MNYL, said a joint statement issued by Max India, NYL and MSIC.
The amount paid is consistent with recent transactions and all parties are comfortable with the valuation, said Michael Sproule, executive V-P and CFO of NYL. However, it is learnt that NYL agreed to pay the Rs 802.2 crore to Max India to circumvent the first right of refusal that the local partner had in case of NYL wanted to exit the venture.
NYL's capital gain was around Rs 1,175 crore on an investment of around Rs 575 crore spread over 11 years. Sproule said the return was satisfactory. He said the buyer has already deducted the capital gains tax at the rate of 21%. A senior lawyer said that NYL has to pay tax on the capital gains on the sale of shares to MSICL. The sale of share to the Max India was done at par and so there is no capital gains earned in that. Sproule said the sale of its entire stake of 26% in the joint venture should not be taken as an indication that India is no more an attractive destination. "India remains a vibrant and attractive market for life insurance.''
After the deal, MNYL will be renamed as Max India Insurance Company. However, MSICL will have two representatives on the board of the new joint venture company. Founder chairman Analjit Singh said for the next stage of MNYL's growth, Mitsui Sumitomo will be an ideal partner.
STRATEGIC PLAY
In the first part of the deal, the Indian partner Max India acquired 9.4% share capital of MNYL from foreign partner New York Life at par value for Rs 182.3 crore
In the second part, Max India sold 9.37% stake in MNYL to Mitsui Sumitomo Insurance Company (MSIC) for Rs 984.5 crore. So, Max India made a pre-tax profit of Rs 802.2 crore In the third part of the transaction, New York life sold its remaining 16.6% stake in MNYL directly to MSIC for Rs 1,747 crore
Analjit Singh
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