M & A CritiqueThe Board of Max India Ltd, on January 27, 2015, has approved a Corporate Restructuring plan to split the company through a demerger, into three separate listed companies with three separate business verticals ‐‐‐ life insurance, health and allied businesses and manufacturing industries. The company split into three entities – Max Financial Service Ltd with the insurance business, Max India Ltd with the healthcare and allied businesses and Max-Ventures and Industries Ltd with speciality packaging film business. The leadership would remain unchanged upon the demerger. The Board had also approved divestment of its clinical research business. Analjit Singh will continue to be the chairman, Rahul Khosla will be the managing director and Mohit Talwar will continue to be the deputy managing director.
The restructuring is a significant strategic event and was undertaking to provide investors specific and undiluted access to Max India’s diverse lines of business, provide the sharper focus to each underlying business and to unlock shareholder value.
After the split, Max India will be renamed ‘Max Financial Services Limited’(MFSL) and will solely focus on the group’s flagship life insurance activity, through 72.1 per cent stake in Max Life, making it the first Indian listed company solely focused on life insurance. The Insurance Laws (Amendment) Bill, 2015 passed by the parliament for raising FDI to 49% among other things has created renewed investor interest in the Life Insurance Sector.
The second vertical would be Max India Limited (MIL) which would continue to manage investment in the high‐potential health and allied business comprised of Max Healthcare, Max Bupa, Antara Senior Living and supported by a corporate management service team. The demerger will provide these businesses, which are currently in their growth and development phases, sharpened focus to fulfil their tremendous potential. The Corporate Management Services team will manage a shared Services Centre, which will provide functional support to all 3 verticals.
The third vertical will be named Max-Ventures and Industries Limited (MVIL), which will house the investment in the group’s manufacturing subsidiary Max Speciality Films ‐ one of the leaders in the speciality packaging films business (it recorded revenues of Rs 746 crore with a profit of Rs 14 crore in FY14). Max-Ventures would look into exploring new businesses which would primarily be focused on providing affordable solutions.
Max India has also initiated action for divestment of its entire 100% Stake in the clinical research business, Max Neeman entities in India and United States. They are proposed to be divested to a Canadian Contract Research Organization (CRO), JSS Medical Research Inc. for consideration of US$ 1.5 million, subject to successful completion of due diligence and signing of the definitive agreement, expected by mid – February.
ABOUT MAX INDIA
Max India Limited is a listed company incorporated under the provision of Companies Act, 1956 on February 24, 1988, having its registered office at Nawanshahr, Punjab. Issued, paid-up and subscribed capital of the company as on date is 53,29,84,046/‐ divided into 26,64,92,023 Equity Shares of Rs2 each. It is listed on both national exchanges in India – the Bombay Stock Exchange and the National Stock Exchange. The largest shareholding is the owner sponsors, led by Analjit Singh at over 40%. Other significant shareholders include some of world’s most prestigious private equity investors such as Goldman Sachs and International Finance Corporation, Washington (IFC)
Over the years, Max India has had a history of forging and nurturing strong and successful joint venture with leading global companies such as Hutchinson Telecommunications, Motorola, Schering AG, Avent Inc., Gist Brocades(GB), The Upjohn Company, Comsat International Ventures, Atotech BV. Today, the company shares excellent relationships with its joint venture partners in the life insurance, health insurance, and Healthcare space. Not only have these partnerships stood the test of time, they have consistently grown, developed and matured into strong relationships.
Max India is a multi‐business corporate, driven by the spirit of enterprise and focused on people and service oriented businesses. The company’s vision is to be one of India’s most admired corporates for service excellence. Max India Group has the commanding presence in the life insurance, health care, and health insurance sectors.
Max India is in the ‘Business of Life’. It ‘Protects Life’ through its Life Insurance subsidiary Max Life Insurance Company, a Joint Venture between Max India and Mitsui Sumitomo, ‘Cares for Life’ through its Healthcare company, Max Healthcare, a Joint Venture with Life Healthcare, South Africa, ‘Enhances Life’ through its Health Insurance company, Max Bupa Health Insurance, a joint venture between Max India and Bupa Finance Plc., UK, ‘Rejuvenates Life’ through its Senior Living business Antara, a fully owned subsidiary of Max India and ‘Improves Life’ through its Clinical Research business, Max Neeman, a fully owned subsidiary of Max India. From its past, Max India continues its interest in the manufacture of Speciality Products for the packaging industry.
In the Financial year 2015, the Group recorded a consolidated turnover of Rs 14,877 crore. It has a total customer base of around 7.5 million, over 300 offices spread across India and people strength of around 17,000 as on March 31, 2015.
Max India subsidiaries
Max Life Insurance Company Ltd. (MLIC) is a Joint Venture with Mitsui Sumitomo, Japan. Established with a vision to be the most admired life insurance Company in India, Max Life Insurance Company (formerly Max New York Life Insurance Company) was incorporated in the year 2000.
Max Life is in the business of protecting lives & ensuring the dignity of families. It is this larger cause that has driven this company to secure around 3.6 million lives with a sum assured exceeding INR 2000 billion. It is the largest non-bank owned private sector insurance company in the country. MLIC’s multi-channel distribution has built strengths in need-based selling processes for long-term saving & protection solutions.
Max Healthcare Institute Ltd. (MHC) is a Joint Venture with Life Healthcare, South Africa, and Max Healthcare is the country’s leading comprehensive provider of standardized, seamless and international-class healthcare services. It is committed to the highest standards of medical and service excellence, patient care, scientific and medical education. Max Healthcare operates twelve facilities in North India, offering services in over 30 medical disciplines.
Max Healthcare has a base of over 2,100 leading doctors, 6000+ employees and over 22,00,000 patients, with approximately 2000 beds.
Max Bupa Health Insurance Company Ltd. is a Joint Venture between Max India Limited and Bupa, a leading international healthcare provider with over 60 years of healthcare knowledge. Max Bupa brings together a combination of Bupa’s global health insurance expertise and customer service expertise with Max India’s understanding and experience of the Indian health and insurance sectors.
Max Bupa is one of the four standalone health insurance companies in India. Driven by a philosophy that promotes ‘Your Health First’, the company started operations in March 2010 with the mission to help customers’ live healthier and more successful lives. The Company’s vision is to become India’s most admired health insurer with consumer centricity being the key to delivering high quality and consistent service experience.
Max Bupa has a direct working relationship with a strong network of over 3500 top quality hospitals and healthcare providers. The company services its customers directly, through an in-house team of relationship managers and also has a 24/7 health line for easy and friendly access to health advice through network of offices across India.
Max Neeman Medical International (MNMI) is a provider of clinical research services across the entire value chain of new drug development to global pharmaceutical, biotech and devices companies, both in India and abroad. The company operates through a dual-shoring model, with marketing based in the USA and clinical trial operations in India with access to hospitals and healthcare facilities across India.
Antara Senior Living (ASL) is the Group’s foray into the senior living space to cater to the lifestyle and life care needs of senior citizens. With its fully serviced condominiums that would allow seniors to enjoy their retirement years and age-in-place without day-to-day worries, Antara Senior Living is a new and unique concept.
Max Speciality Films (MSF) is a Strategic Business Unit of Max India. It is the only manufacturing business that Max India continues to operate after its reinvention and shift to service-oriented businesses in 2000.
MSF is a Leader in the manufacture of wide range of Bi-axially Oriented Polypropylene (BOPP) and other sophisticated Barrier and Packaging Films. The Product range covers plain, pigmented, ultra-high barrier films & Leather Finishing Foils. The business has continuously strived to be a specialized film producer and has expanded into value-added films like metallized and coated films for thermal lamination. MSF Offers superior packaging solutions for a wide range of consumer products like tea, tobacco, confectionery, labels, cigarette overwrap, decorative uses; some industrial uses like cable insulations, CD & textile grade & publishing industry. MSF currently has a fully integrated manufacturing facility in Railmajra, Punjab with the capacity of 52,000 TPA.
Max India Foundation (MIF) spearheads the CSR initiatives of the Max India Group entities. The foundation has been working relentlessly in the areas of healthcare, immunization, health care and environment, in its endeavour to improve the quality of life. MIF operates across the country in association with Max India Group companies and closely involves all employees of the Group.
In a short span of about three years, MIF has been able to make a difference in the lives of over 1.1 million people across more than 428 locations across India. MIF has partnered regularly with reputable NGO’s such as CanSupport, SOS Children’s Village, Manav Seva Sannidhi and Chinmaya Mission to undertake initiatives like pan India immunization programme, surgeries for underprivileged, artificial limb and polio calipers camp, multi-speciality camps, blood donation camps, onboard rail operation theater – Life Line Express, ‘Clean Delhi Clean Yamuna’ campaign, support for disaster relied victims amongst others. Max India Foundation has been awarded the Golden Peacock Global Award, the BSE Award, and the Indy’s Award, for CSR, for the significant impact the Foundation has made to the lives of the needy.
Segment-wisePerformance :
Max Life Insurance, a 71% subsidiary of Max India, in Second Quarter for financial Year 2014-2015 (Q2FY15) continued to outperform the industry by posting an impressive individual new business premium (APE) growth of 5%, to Rs 436 crore vs Q2 FY14. The Gross Premium (GWP) of the Company grew 15% to Rs. 1937 crore and Assets under Management (AUM) were up 29% to Rs. 28,038 crore.
Max Healthcare has in Q2FY15 reported a growth of 24% in net revenue to Rs 435 Cr, and 44% growth in Earning before Interest, Dividend & Tax (EBIDTA), to Rs. 45 Cr. It’s cash profit also grew by 180% to Rs 22 Cr. Life Healthcare completed its stake equalization with Max India, in Max Healthcare in the Q2 FY15, at an Enterprise Value of Rs 3,650 Cr.
Max Bupa Health Insurance in Q2FY15, a 74% subsidiary of Max India posted, a growth of 21% in Gross Written Premium to Rs 86 crore. Its average premium realization increased to 23% to Rs 6,452.
Antara Senior Living a 100% subsidiary of Max India in Q2FY15, serving the high potential Senior Living industry, continues to generate considerable media and public interest and witnessed encouraging sales momentum for its maiden senior living community being built at Dehradun.
Max Speciality Films, a subsidiary of Max India since 1 April 2014, saw a 25% increase in EBIDTA to Rs 20 Cr in Q2FY15
THE DEAL :
Currently, three unrelated business are operating under one listed entity which was making difficult to explain its business model to different stakeholders if an entity is unable to describe its business in one sentence then the business itself stands to be questioned. The board of Max India, the flagship company of New Delhi-based serial entrepreneur Analjit Singh approved a three-way demerger of its insurance (MFSL), healthcare (MIL) and specialty films (MVIL) with holding companies being created for each of them. These may then be listed at a later date in a bid to unlock value in the separate businesses.
Under the plan, Max India will park its stake in Max Life Insurance and Max Bupa Health Insurance in a holding company that will be listed on the bourses. The shareholding pattern in this holding entity will be similar to that of Max India, in which Analjit Singh and his family own 40.5%, with the remaining 59.5% being held by the public.
Max India currently has cash reserves of Rs 605 crore as of December 31, 2014 and it is proposed that the cash is split between the three companies such that Max Financial Services will hold Rs 150 crore, Max-Ventures Rs 10 crore and the rest, likely to be over Rs 400 crore, held by the newly formed Max India. There is a plan to make a voluntary open offer for buying up to an additional 34.5 per cent stake in Max-Ventures and Industries, which will be listed after the demerger.
Swap Ratio :
Once the demerger scheme is effective, after due regulatory approval, Max India’s shareholders whose name will appear in the Register of members on a ‘Record Date’ will retain one Equity Shares of Rs 2 in MFSL (Existing Max India, as renamed) in addition, the Shareholders will get share in the new companies as detailed below:
- One Equity Share of Rs 2 each of MIL (Resulting Company 1) for every One Equity Shares of Rs 2 each held in MFSL; and
- One Equity Share of Rs 10 each of MVIL (Resulting Company 2) for every Five Equity shares of Rs 2 each held in MFSL.
FUTURE PROSPECT :
- Life insurance business will grow at the same rate as in the past five years.
- The growth curve for health care business will be much steeper and higher. Max Group is well capitalised and has stronger execution and management teams.
- With the creation of Max-Ventures and Industries, Max India Group will revisit new opportunities in this environment.
- Analjit Singh (Chairman) has the plan to re-engage and create new things for the Max group, and for the family. He also says that “The theme will be affordable solutions to tap the mass markets – the middle class, we have to analyse the gaps in the market at that level. I want to address at least 33 percent of the population, and not only the top two percent.”
- The promoter of the Company, Mr. Analjit Singh, informed the Board of his intention to make a voluntary open offer for buying up to an additional 34.5% stake in Resulting Company 2, i.e. MVIL which would take his aggregate shareholding (together with person acting in concert) in MVIL to a maximum of 75% .
CONCLUSION :
The demerger is aimed at giving structural clarity for long-term investors. This demerger will provide Investors with the choice to continue to be associated with all these businesses, or only specifically invest in the set of businesses that suit their respective investment philosophy and to give investors specific and undiluted access to its diverse lines of businesses, provide the sharper focus to each underlying business, and unlock shareholders value.
It will simplify the ownership structure and have a clear line of sight – for investors, the company and the family. Investors who only want to focus on life insurance and/or health and allied activities and don’t have manufacturing focus will have an option through the open offer to exit this investment if they so wish.
