Apollo Munich to merge with HDFC ERGO

HDFC Ltd. has signed a definitive agreement with Apollo Munich Health Insurance to buy out the entire Apollo Hospitals Group’s stake of 50.8% for ₹1,136 crore and another 0.4% stake held by a few employees for ₹10.84 crore.

Post the acquisition of shares by HDFC, Apollo Munich would be merged with the former’s general insurance subsidiary — HDFC ERGO. ERGO is a subsidiary of Munich Re, which has been a joint venture partner of HDFC ERGO since 2008.

Munich Re will continue to hold 49% stake in HDFC ERGO post the merger.

The acquisition would make HDFC ERGO the second-largest private sector insurer in the combined accident and health insurance vertical, with an 8.2% market share.

“What is particularly attractive for us is Apollo Munich’s strong agency network with over 70,000 agents. A diversified distribution network is essential to strengthen market position,” said Deepak Parekh, chairman, HDFC Ltd. HDFC ERGO would retain all the employees of Apollo Munich.

Based on the acquisition price, Apollo Munich is valued at a multiple of 1.2 times the gross written premium of FY19 which is ₹2,194 crore.

‘Strong synergies’

“We believe this valuation is reasonable and this transaction will result in strong synergies and bring in economies of scale,” Mr. Parekh said.

The combined entity would have a market share, in overall insurance, of 6.4% compared with 5.1% of HDFC ERGO and a combined gross written premium of ₹10,807 crore.

He also said this acquisition was a step towards the initial public offering of HDFC ERGO as scale was important before tapping the capital market.

Apollo Hospitals, which had invested ₹300 crore in the health insurance venture, would use the proceeds from this deal to reduce debt and invest in infrastructure.

There is a three-year non-compete clause in the deal which means that Apollo cannot re-enter the health insurance sector for three years.

Munich Health Germany would pay ₹294 crore to Apollo Hospitals Enterprise and Apollo Energy to support the transaction.

Mr. Parekh said he expected 9-12 months to secure the requisite approvals.

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Printable version | Apr 15, 2021 5:41:54 AM |

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