Mumbai, Aug. 8: The boards of HDFC Standard Life Insurance and Max Life Insurance today finalised the merger of the two insurers in a three-step process, paving the way for the formation of the country's largest private life insurance company.

The merged entity, which is expected to have a valuation of over Rs 65,000 crore, will pay a non-compete fee to the promoters of Max Group. The Rs 850-crore fee will be paid over four years, with an upfront sum of Rs 501 crore, payable after the completion of the transaction. The rest will be made in three equal annual installments totaling Rs 349 crore.

The three-step merger process will first see Max Life merging with Max Financial Services - the parent of Max Life. Thereafter, the life insurance undertaking will be demerged from Max Financial Services into HDFC Life, which will be the merged entity. Subsequently, there will be a merger of Max Financial Services (holding the residual business) into Max India.

After this, merged unit HDFC Life will become a listed company. It will have HDFC and Standard Life as the promoters. While HDFC will hold around 42.5 per cent in the merged company, Standard Life's shareholding will be 24 per cent.

The proposed transaction is expected to become effective over the next 12-15 months.

The boards of Max Financial Services and Max India also gave their approval to the deal.

Shareholders of Max Life will get one share of Max Financial Services for every five shares on account of the merger.

For demerging from Max Financial Services into HDFC Life, shareholders of Max Financial Services will get 2.33 shares of HDFC Life for every share.

Max Financial Services will seek the approval of public shareholders (more than 50 per cent of the votes cast) for the non-compete fee.

A joint press statement said the non-compete fee paid by the merged entity to the promoters (Analjit Singh and other entities) of Max Financial Services was a consideration to the goodwill attached to the products and business of Max Life.

To a query on whether the Securities and Exchange Board of India would give its green signal to the non-compete fee, the senior management of HDFC Life said at a press conference that the proposal was subject to the approval of the majority of minority shareholders of Max Financial Services and, therefore, the market regulator should not have an objection.

According to the agreement, the merged entity can also use the Max brand for a period of seven years.

The merged entity will have a market share of 10.8 per cent. Analjit Singh, founder and chairman emeritus of Max Group, was optimistic that it had the potential to overtake market leader LIC.

The total premium of the merged entity is expected to be Rs 25,500 crore.