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The Japanese's love for Indian companies, especially in the financial services space, continues. Max New York Life Insurance got a new buyer with New York Life planning to sell its 26 per cent stake.
The stake sale to Mitsui Sumitomo Insurance Company (MSI) by New York Life will immensely benefit Max India, a 70 per cent owner of Max New York Life, on the back of better-than-expected valuations for the life insurance business. Additionally, Max India will make huge gains (of more than Rs 800 crore ) from this deal.
Valuation
Max India will buy 9.35 per cent from New York Life Insurance for Rs 182 crore and sell it to MSI for Rs 984 crore. The deal values the life insurance business at Rs 10,500 crore.
According to April 2011 news reports, promoters of the joint-venture had infused Rs 1,976 crore into Max New York Life till FY11. Given that the life insurance business has turned profitable, there may not have been any significant incremental capital infusion.
With 70 per cent stake in the life insurance business, the valuation attributable to Max India is in excess of Rs 7,350 crore. This is higher than the market capitalisation of the company of Rs 5,395 crore (Thursday's closing).
Value per share
While the deal value works out to Rs 276 per share. Analysts from Goldman Sachs, Bank of America, Merill Lynch and Espirito Santo had attributed anywhere between Rs 173 and Rs 211 per share for the life insurance business before the deal.
Last year, Nippon Life Insurance picked up a 26 per cent stake in Reliance Life Insurance and valued the latter at Rs 11,500 crore. Max New York Life has been making profits for a while and enjoys better market share than Reliance Life.
For the nine months ended December 2011, the market share of Max New York Life was 9.3 per cent, according to reports. The insurance business made Rs 339 crore of shareholder profits during this period. Max New York Life benefited from the tie-up with Axis Bank to distribute its products. Axis Bank reportedly bought a 4 per cent stake at Rs 72 crore .
The stock market cheered the deal and closed with 8.3 per cent gains.
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