MERGER ANNOUNCEMENT
ICICI Lombard General Insurance Co. Ltd and Bharti AXA General Insurance Co. Ltd, last week, announced a merger to form the country’s third-largest general insurance entity. The merger is subject to approval from the Insurance Regulatory and Development Authority of India (IRDAI), Competition Commission of India, stock exchanges, Securities and Exchange Board of India (SEBI) and other shareholders and stakeholders.
Cyril Amarchand Mangaldas acted as the legal counsel to Bharti AXA General Insurance Company Limited (Bharti AXA) and Bharti General Ventures Private Limited (Bharti General) on the de-merger of Bharti AXA’s general insurance business with ICICI Lombard General Insurance Limited (ICICI Lombard).
WHY THE MERGER?
ICICI Lombard’s merger with Bharti AXA General Insurance is expected to increase the market share of the company in the segment of motor insurance. It will also enhance its business through the bancassurance (Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base) and corporate agency tie-ups that Bharti AXA had formed in the recent past.
Currently, ICICI Lombard has around 10 per cent market share in the motor insurance business. After the merger, it will command a 12 per cent market share. Furthermore, the consolidated entity will have a market share of 8.7 per cent in the non-life business, making it the third-largest non-life insurer in the general insurance business. The state-owned insurers presently hold the first two positions.
Bharti Axa General Insurance was founded in the year 2008 and is a joint venture between Bharti Enterprises (51%) and Axa (49%). With this deal, Bharti Axa General will demerge from Bharti Enterprises and merge with ICICI Lombard’s business.
Bharti AXA General Insurance has almost 6,700 agents in the agency network, which, so far, has largely focused on motor and small and medium-sized enterprise segments. After the fructification of the transaction, the company will look to leverage this agency force to cross-sell other products.
According to the press release of Bharti Axa, under the terms of the agreement, AXA and Bharti will receive a total of 35.8 million shares of ICICI Lombard on closing, which would represent Euro 521 million at current market value, and an implied HY 2020 P/BV* multiple of more than 5 times.
The price to book value (P/BV) ratio is a widely used valuation parameter used for valuing stocks.
The transaction is expected to result in a one-time positive Net Income impact of approximately Euro 0.2 billion* in AXA Group’s FY 2021 consolidated financial statements.
As part of the Transaction, ICICI Lombard will issue equity shares, worth INR 4485 crores to the shareholders of Bharti AXA. The consideration for the transaction was entirely in the form of ICICI Lombard shares to the shareholders of Bharti AXA General Insurance and no cash consideration was involved.
IMPACT ON THE CUSTOMERS
Based on the expert of the field view available in the newsreports-the transition process—like in case of previous mergers and acquisitions—could take up to a year. Since ICICI Lombard customers will continue dealing with the same entity, they will not see any changes in their policies due to the merger. Meanwhile, customers will be serviced as usual for their new policies, renewals and claims, digitally and physically, without any disruptions. After the merger is completed, all policies of Bharti AXA General Insurance will be migrated into the demerged entity, which will be proactively communicated to the customers.
According to newspaper reports online, in case any plan is discontinued, the company will get in touch with the policyholders through various channels. Once the two companies are merged, ICICI Lombard may look at eliminating products that it already has in its portfolio to avoid duplication.
IMPACT ON PREMIUMS
The newspaper reports on the merger in leading daily mentions since the transition could take up to a year, a change in premiums is not something policyholders need to worry about immediately. However, the merger of the two companies and subsequent rationalization of products may lead to an impact on the premiums after a certain period.
IMPACT ON CLAIMS
Servicing of claims will not change until the merger is over, as both companies will continue to operate as separate entities. The merger could also result in a wider chain of network providers, benefitting the policyholders of both the insurers. Since IRDAI keeps a close watch on the companies, experts said there isn’t much for policyholders to worry about.
ABOUT BHARTI AXA
Bharti AXA GI is the 11th largest non-life insurance private sector player* in India. The company has ca. 2,300 employees and has a pan-India presence through 152 branches. It distributes a comprehensive suite of retail and commercial non-life products through a multi-channel approach including motor dealers, agencies, the Airtel network (Bharti’s flagship company and one of the world’s largest telecom providers), bancassurance and digital. The Underlying Earnings of Bharti AXA GI recorded in AXA Group’s FY19 consolidated financial statements was Euro 1 million. Apart from Bharti AXA GI, AXA’s presence in India also comprises of its 49% ownership in Bharti AXA Life, a life insurance joint venture with Bharti.
ABOUT ICICI LOMBARD
ICICI Lombard is one of the largest private-sector non-life insurers* in India based on gross direct premium income in fiscal 2020. The company offers its customers a comprehensive and well-diversified range of products, including motor, health, fire, personal accident, crop, marine, engineering and liability insurance, through multiple distribution channels.
LEGAL MINDS BEHIND THE TRANSACTION
The General Corporate, Competition Law practices, assisted by the Artificial Intelligence team, of Cyril Amarchand Mangaldas, advised on the Transaction.
The Transaction team was led by Shishir Vayttaden, Partner; and Dhruv Singhal, Partner; with support from Sonakshi Arora, Senior Associate; and Swapna Satapathy, Associate.
Indranath Bishnu, Partner; with support from Pranjita Burman, Principal Associate; assisted on the insurance law aspects of the Transaction.
Avaantika Kakkar, Partner & Head – Competition; and Vijay Pratap Singh Chauhan, Partner; assisted on the competition law aspects of the Transaction.
Komal Gupta, Head – Artificial Intelligence & Innovation; with support from Lvanika Parti, Principal Associate; Yash Vardhan, Senior Associate; Ruchi Bawa, Senior Associate; Harmeet Dhall, Senior Associate, Punya Khachi, Senior Associate – Designate, along with Arveen Chugh, Associate; and Surabhi Saboo, Associate, assisted on the Transaction.
Other parties involved in the Transaction included Ernst & Young LLP (EY) (M&A & Financial advisor to ICICI Lombard and Bharti AXA); and BDO Valuation Advisory LLP and MKSA & Associates (Valuer).
About Cyril Amarchand Mangaldas
India’s Leading Law Firm, Cyril Amarchand Mangaldas was founded on May 11, 2015, and takes forward the values going back 103 years, of the erstwhile Amarchand & Mangaldas & Suresh A. Shroff & Co. Tracing its professional lineage to 1917, the Firm has over 750 lawyers, including 137 partners, and offices in India’s key business centres at Mumbai, New Delhi, Bengaluru, Hyderabad, Chennai and Ahmedabad. The Firm advises a large and varied client base that includes domestic and foreign commercial enterprises, financial institutions, private equity funds, venture capital funds, start-ups and governmental and regulatory bodies.
The firm received “Law Firm of the Year” award at the Asian Legal Business (ALB) India Law Awards 2020 and “Law Firm of the Year, India” at the Asialaw Regional Awards 2020. The firm was also named as the “Most Innovative National Law Firm of the Year – India for 2020” at the IFLR Asia Awards and voted as the “Employer of Choice for 2020” from India, by the Asian Legal Business.
THE FINAL COUNTDOWN TO MERGER
The Transaction was signed on August 21, 2020, and is subject to regulatory approval. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals, and is expected to close by 4Q 2021.
This press release is an exclusive coverage of INDIAN LAW WATCH.
Add Comment