Mumbai:
HDFC Limited has decided to acquire the entire 50.8 per cent shareholding of Apollo Group, in Apollo Munich Health Insurance Company for a consideration of Rs. 1,336 crore and 0.4% shareholding held by a few employees for a consideration of Rs 10.84 crore.
Post-acquisition of the shares by HDFC, Apollo Munich shall be merged with its general insurance subsidiary, HDFC ERGO General Insurance Company, which will emege as the second largest private insurer in the accident & health segment with a market share of 8.2 per cent.
“It is difficult to put an exact timeframe for these two stages, but we are hopeful that the entire process should be completed over the next 9-12 months.'' said Deepak Parekh, chairman of HDFC Ltd and HDFC ERGO General Insurance in a press conference on Wednesday.
The merger with HDFC ERGO will create a strong health insurance franchise, with a combined gross direct premium of Rs 10,807 crore in FY19.
"We had to do two-step transactions since if HDFC Ergo had directly bought Apollo's stake then it would have breached 49 per cent cap on foreign investment in insurance for Munich Re," Parekh said. Munich Re, through its wholly owned subsidiray Ergo is already HDFC's partner in general insurance company-HDFC Ergo General Insurance Company.
Post transaction, Munich Re will continue to hold 49 per cent stake in HDFC ERGO General Insurnace .
“We have assured that we will retain all the employees of Apollo Munich,'' he added.
To support the transaction with its material benefits for Apollo Munich, Munich Health will pay Rs 294 crore to Apollo Hospitals Enterprise Ltd and Apollo Energy Ltd in connection with the termination of their joint venture.
The proposed transaction brings together two large insurance players with complementary capabilities. The merged insurance entity on a pro-forma basis has a combined market share of 6.4 per cent of non-life insurance industry, with 308 branches across the country.
The proposed merger is expected to result in significant benefits to policy holders and other stake holders with an enhanced product suite, touch points, technology innovation, as also via scale based synergies.
Parekh further said,“Health insurance penetration in India is still at a very nascent stage compared to the global average, but is expected to drive growth of the general insurance industry in the times to come. This transaction will strengthen the HDFC group’s commitment to the growing health insurance segment. The combined expertise of HDFC ERGO and Apollo Munich will result in greater product innovation, wider distribution and enhanced servicing capabilities, benefiting their 1.2 crore policy holders.”
Accident & health is currentlythe fastest growing segment in the non-life insurance sector, he said.
Based on the acquisition price of Rs 1,347 crore for 51.2% equity stake in Apollo Munich, the company is valued at a multiple of 1.2 times the gross written premium in FY19. We believe this valuation is reasonable and this transaction will result in strong synergies and bring in economies of scale.
Shobana Kamineni, Chairperson Apollo Munich Health Insurance and Vice Chairperson Apollo Hospitals Enterprise Limited said, the funds from the divestment will enable us to focus on investing and growing our core healthcare business.”
Commenting on behalf of Munich Re Group, Dr. Markus Riess Chairman ERGO Group AG Germany and Member of the Board of Munich Re said
“Over the years, Munich Re Group has enjoyed an excellent relationship with the Apollo group, in building a powerful franchise in Health insurance. With this transaction, we are very much looking forward to further strengthening our ties with HDFC Group and consolidating our presence in India”.
The proposed share acquisition will be subject to regulatory approvals by National Housing Bank (NHB), Insurance Regulatory and Development Authority of India (IRDAI) and Competition Commission of India (CCI). The subsequent merger of Apollo Munich with HDFC ERGO would be subject to approval of the shareholders, National Company Law Tribunal (NCLT), and final approval of IRDAI.