U.S.-based New York Life, on Thursday, said it had sold its 26 per cent stake in Max New York Life Insurance to Mitsui Sumitomo Insurance (MSI) of Japan for Rs.2,731 crore.
“The transaction values Max New York Life at Rs.10,504 crore ($2.1 billion). The consideration offered by MS&AD (that owns MSI) reflects the strong confidence in the company and its superior performance,” Max India Chairman Analjit Singh told journalists here.
The deal, which will result in the change of the firm's name to Max Life Insurance Company (Max LIC), is a complex agreement between the three firms, where New York Life will sell 16.63 per cent of its holding to MSI, while the remaining 9.37 per cent would be sold to Max India for Rs.182 crore. Max India will then sell the 9.37 per cent stake to MSI for Rs.984 crore. Post the transaction, Max India's stake will remain unchanged at 70 per cent. As per the existing regulation, a foreign partner can hold only up to 26 per cent stake in an insurance joint venture.
“MNYL is the most profitable business in Max India's portfolio and forms about 80 per cent of group revenue. Given this, the deal provides the right direction for market valuation of Max India's stock. The cash generated from the arrangement will enable Max India to invest in growth opportunities and reward shareholders,” Max India Managing Director Rahul Khosla told journalists here.
Reacting on the overall structuring of the deal, Mr. Khosla said: “From our perspective, there are worthwhile tax advantages in doing so. We are able to sell shares in such a way that from tax submission perspective, they make more sense for what tax rates are applied.”
Pointing out that there was an overall benefit of Rs.879 crore, Mr. Khosla said: “We are doing this because this is the most effective way to do it. A separate buy transaction…a separate sell transaction. So, a pre-tax cash benefit of Rs.879 crore will accrue.” Out of this, Max India will get a net cash flow of Rs.802 crore and Rs.77 crore as brand fee for Max New York Life.
According to MSI President and Chief Executive Officer Yasuyoshi Karasawa, “MNYL is the best possible life insurance company that we could have partnered with for our entry into the Indian Life Insurance space with its life insurance focus, a balanced distribution and product mix, robust corporate governance practices and a strong and committed management team.”
Announcing its exit, New York Life Insurance CFO Michael Sproule said the company was taking the step as it needed to focus on its North American business. This all-cash deal is the second largest in the Indian insurance sector after Reliance Life that has sold its 26 per cent stake to another Japanese firm Nippon Life for about Rs.3,062 crore in 2011.
