Understanding Max India’s Corporate Restructuring

Max India Limited – Corporate Restructuring

The Board, at its meeting held on January 27th 2015, approved a corporate restructuring plan to split the company into 3 separate listed companies with 3 separate business verticals, viz. Life Insurance, Health & Allied businesses and Manufacturing Industries.


The company will be split into 3 listed entities – Max Financial Services Ltd. with the insurance business, Max India Ltd. with the health and allied businesses, and Max Ventures and Industries Ltd. with the speciality packaging films business.

The Demerger


The demerger is explained graphically below:

The original entity – Max India, which will be renamed as Max Financial Services Ltd., will focus solely on the group’s flagship insurance activity, through its 72.1% holding in Max Life. It will be the first Indian listed company exclusively focused on life insurance.


The second entity, named as Max India Ltd., will continue to manage investments health and allied businesses comprising Max Healthcare, Max Bupa, Antara Senior Living and a Corporate Management Services team. The Corporate Management Services team will manage a shared services centre which will provide functional support to all the 3 entities.


The third entity will be named Max Ventures and Industries Ltd. and will house the investment activity in the group’s manufacturing subsidiary Max Speciality Films handling the speciality packaging films business.




As a result of the demerger, Max India’s shareholders will retain 1 equity share of Rs. 2 in Max Financial Services Ltd. and will additionally get one equity share of Rs. 2 each of Max India Ltd. and 1 equity share of Rs. 10 of Max Ventures and Industries Ltd. for every 5 shares held in Max Financial Services Ltd.


The share allotment is explained graphically below:


As evident, the shareholding pattern (in percentage terms) will be same for all the 3 entities. A shareholder currently holding x% in Max India Ltd. will continue to hold the same percentage of shares in the 3 resulting entities.


As of December 31st 2014, the promoters of Max India hold 40.48% stake while the public shareholders own the rest 59.52% stake in the company. This proportion of stake will be maintained in all the 3 resulting entities.

Cash Distribution


Max India had cash reserves of Rs. 605 crores as of December 31st 2014. The Board proposes to split this reserve among the 3 entities in such a way that Max Financial Services Ltd. will hold Rs, 150 Crore, Max Ventures and Industries Ltd. will hold Rs. 10 Crore and the balance ~Rs. 400 Crore will be held by newly formed Max India Ltd.


 Other Corporate Actions


The company has also initiated an action for the sale of its entire 100% stake in the clinical research business – Max Neeman entities in India and US to JSS Medical Research Inc., a Canadian Contract Research Organisation, for US$ 1.5 Million.

Leadership & Senior Management Changes


There will be no change in the leadership as well as in the senior management of the entities. Analjit Singh (Chairman), Rahul Khosla (MD) and Mohit Talwar (Deputy MD) will continue to hold appropriate roles in the demerged entities of the Max Group. The top leadership of the individual businesses will continue in their roles post demerger.


 Voluntary Open Offer by Promoters


The promoter, Analjit Singh has also informed the Board of his intention to make a voluntary open offer for buying up to  an additional 34.5% stake in Max Ventures and Industries Ltd. which would take his aggregate shareholding to a maximum of 75%.


 Management’s Rationale of the Demerger


As per the Chairman, the demerger will provide choices to an investor to either stay associated with all the businesses of the group or specifically invest in the businesses that the investor wants.

InGovern Opinion


The rationale behind the demerger is to unlock value of the individual businesses while also offering shareholders a choice of either staying invested in all the three businesses or in selected ones. The demerger may also benefit shareholders in way of higher dividend payment by profit making entities and tax savings from capital intensive and loss making divisions.

What should the Company Do?


In such group-wide corporate restructurings, companies should strive to make their business structure as simpler as possible. Cross holdings between various group entities should be avoided and complex holding structures may likely create confusion for present and potential investors. In case the restructuring results in a seemingly complex structure, the Board should explain in detail why such a re-structuring is necessary and why other alternatives have not been explored.


The proposed corporate restructuring of Max India spins-off the company into 3 separate listed entities with separate businesses and shareholders get same percentage of stake that they hold in Max India, in all the 3 entities. Hence, it can be inferred that the restructuring is simpler and beneficial to the interest of all shareholders.


As per the existing laws, in schemes of arrangement, Indian listed companies are required to disclose the scheme, valuation reports, fairness opinions, financial information of the involved entities and other documents in their company website.


Max India should disclose all the required documents in its website so that shareholders can access them easily. The scheme should be detailed and information regarding splitting of, assets, contingent liabilities, etc. should be provided along with the explanatory statement. Although the demerger seems to be beneficial for all shareholders, the company should specifically disclose any beneficial interest of the promoters post the re-structuring exercise.

What should Minority Shareholders Do?


In such cases, minority shareholders should try to understand the rationale behind the re-structuring and the promoter’s beneficial interest, if any.


InGovern believes Max India’s management rationale of unlocking of value and providing shareholders a choice is fair and reasonable. Also, since the share-allotment in all the 3 entities will be in same proportion, there is seemingly no benefit for the promoters over and above what minority shareholders are receiving.


Minority shareholders should also check the fairness of the consideration being offered to them by the Board. Since most of the mergers in India involve share-swaps rather than cash consideration, shareholders should ensure that the value of shares that they will receive is fair as compared to the assets that they will part with.


In this case, the shareholders are allotted proportionate stake in all the 3 entities. Hence, the consideration is fair and does not shortchange any of the shareholders.


Creation of treasury shares, shares with differential voting rights, etc. as a result of the restructuring should be avoided at all costs.


This restructuring has no such concerns.



Although the scheme of arrangement is yet to be made available to the public, as per information available in the press release by the company, the corporate restructuring by Max India seems to be fair and not likely have any concerns.