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Max Financial, Axis Bank to make changes to value creation options in insurance deal

finance | Jul 23, 2020 8:31 PM IST

Max Financial, Axis Bank to make changes to value creation options in insurance deal

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An important clause in the Max Life-Axis Bank deal was a ‘put’ option that allowed Axis Bank to exit the Max Life Insurance.

Max Financial Services and Axis Bank have informed stock exchanges that both companies have agreed to make some changes to the value creation options in their proposed life insurance deal.

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On April 28, Axis Bank had announced acquisition of 29 percent stake in Max Life Insurance.
The two companies have also informed that they will factor in some alternate mechanism under the value creation option, which will be subject to regulatory approvals and permitted under the applicable law.
WHAT WAS THE VALUE CREATION OPTION?
An important clause in the Max Life-Axis Bank deal was a ‘put’ option that allowed Axis Bank to exit the Max Life Insurance. The agreement said that if the value creation options are not consummated within 63 months of closing the deal then Axis Bank can exercise a ‘put’ option on Max Financial to sell all its shares in Max Life at a price of Rs 294 a share to Max Financial.
The put option price of Rs 294 a share compares to the price of 28.61 a share, the price at which Axis Bank would buy 29 percent stake in Max Life Insurance.
According to sources, the IRDAI felt that the ‘put’ option gives unfair and unequal power to one company, in this case Axis Bank.
A ‘put’ option allows any party of the contract to exercise the option of selling the underlying security, assets, bonds or stock at a pre-determined price at any time during a specified timeline.
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