General insurer HDFC ERGO, the country’s fourth largest private sector general insurer, on Friday said it would acquire its rival l&T General Insurance in an all-cash deal for Rs 551 crore. The board of directors of HDFC ERGO General Insurance in its meeting held on Friday approved purchase of the deal subject to approval of Insurance Regulatory and Development Authority (IRDAI) and other regulatory approvals.
“The board of HDFC ERGO General Insurance Company has approved purchase of 100 per cent stake in l&T General Insurance Company subject to regulatory approvals. Once the approvals are in place, the acquired entity will be merged with the acquirer,” it said.
The transaction, however, has been valued at Rs 551 crore in the all-cash deal structured by Arpwood Capital, which advised HDFC ERGO. “The acquisition would help the company improve its market position. The merger process would take about 11 months,” it said.
However, commenting on the deal, HDFC Ergo Chairman Deepak Parekh said, “Considering the importance of scale in the insurance business, consolidation is inevitable. This transaction marks the beginning of this consolidation process. The acquisition will help us further strengthen our presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders.”
It has been speculated that if the deal goes through, this merger would be the first ever merger of two insurance companies. HDFC ERGO is a 51:49 joint venture between mortgages major HDFC and ERGO International of Germany, which is part of the Munich Re Group, and is the fourth largest private sector general insurer in the country.
As far as the company is concerned, it offers all lines of general insurance products, including motor, health, personal accident, home, fire, marine, aviation, liability and crop insurance. In fiscal 2016, it wrote gross premiums of Rs 3,467 crore and made a net profit of Rs 151 crore. It operates through 108 offices and employees a little over 2,000 staff. l&T General Insurance is a wholly-owned subsidiary of engineering conglomerate larsen & Toubro, and was set up six years ago. During the 2016 financial year, its gross premium stood at Rs 483 crore, up 40 per cent over the previous year. It has 28 offices and over 800 employees.
Meanwhile, HDFC, in a separate statement said, it has agreed to sell 12.33 crore equity shares of Rs 10 each of HDFC ERGO, representing 22.902 per cent of its paid-up share capital, to ERGO International at a price of Rs 90.973 per share, aggregating to a consideration of Rs 1,122 crore.