The board of Max India approved a corporate restructuring plan to vertically split the company through a demerger, into three separate listed companies, to give investors specific and undiluted access to its diverse lines of businesses, provide sharper focus to each underlying business, and unlock shareholder value. The board also approved divestment of its clinical research business.
Upon completion of the demerger, the existing company, Max India, is proposed to be renamed ‘Max Financial Services (MFS) upon demerger and will focus solely on the group’s flagship life insurance activity, through its 72.1% shareholding in Max Life, making it the first Indian listed company exclusively focused on life insurance. The Insurance Amendment Ordinance, recently promulgated by the President of India, and widely expected to be approved as an Act, has created renewed investor interest in the life insurance sector.
Upon completion of the demerger it is proposed to name the second vertical Max India, which will continue to manage investments in the high potential Health and Allied businesses, essentially comprising : Max Healthcare, Max Bupa, Antara Senior Living and supported by a Corporate Management Services team. The demerger will provide these businesses, which are currently in their growth and development phases, sharpened focus to fulfill 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 house the investment activity in the group's manufacturing subsidiary, Max Speciality Films - an innovation leader in the Speciality Packaging Films business - and will be named Max Ventures and Industries (MVIL). Set-up in 1989, the Speciality Packaging Films business has been consistently profitable. It recorded revenues of Rs 7.46 billion and profit of Rs 140 million in FY2014. The Prime Minister's new initiative 'Make in India' is set to provide fresh impetus to this business and for this vertical, to start looking at fresh ideas in the wider world of business.
Max India has also initiated action for the divestment of its entire 100% stake in the clinical research business. Max Neeman entities in India and United States are proposed to be divested to a Canadian Contract Research Organization (CRO), JSS Medical Research, for a consideration of USD 1.5 million, subject to successful completion of due diligence and signing of definitive agreements, expected by mid-February.
Once the demerger scheme is effective, after due regulatory approvals, Max India’s shareholders will retain one equity share of Rs 2 in Max Financial Services and will additionally get one equity share of Rs 2 each of Max India for every one equity share of Rs 2 each held in Max Financial Services, and one equity share of Rs. 10 each of Max Ventures and Industries for every 5 equity shares of Rs 2 each held in Max Financial Services.
Max India currently has cash reserves of Rs 6.05 billion as at Dec. 31, 2014. It is proposed to split the cash reserves as on appointed date of Apr. 1, 2015 between the 3 listed companies such that Max Financial Services will hold Rs 1.5 billion, Max Ventures and Industries will hold Rs 100 billion and the balance, likely to be over Rs 4 billion, will be held by the newly formed Max India.
Analjit Singh, Chairman, Max India said, ''The new government is setting a rapid pace for economic reforms. This structural reconfiguration readies us to capitalize on opportunities created by the anticipated all round growth acceleration and to henceforth look at the wider world of business opportunities.''
Explaining the rationale for the demerger, he added, ''Our bouquet of businesses is diverse, but each has considerable value and growth potential. This demerger will provide investors with a 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. For instance, the high growth healthcare business is poised to add significant additional capacity in future. The health insurance and senior living business are less than 5 years in operation and need significant focus, attention and capital, while the relatively mature business of life insurance provides a balance of growth and profitability.''
