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Growth potential spurred Marsh & McLennan purchase of JLT

Growth potential spurred Marsh & McLennan purchase of JLT

Marsh & McLennan Cos. Inc.’s $5.6 billion acquisition of Jardine Lloyd Thompson Group PLC — a major transaction that could not have happened five or seven years ago — is all about growth, according to the company’s top official.

Under the terms of the transaction, New York-based Marsh & McLennan will acquire all issued and to-be-issued share capital of London-based JLT for £19.15 ($25.17) per share in cash, representing a 33.7% premium from JLT’s closing share price of £14.32 on Monday, according to a statement issued by Marsh & McLennan Tuesday morning.

The transaction is expected to close in spring of 2019, subject to required antitrust and regulatory approvals and the approval of JLT shareholders, and there is no termination fee on either side, as both companies are committing to closing the transaction, according to Marsh & McLennan officials.

“This a big day for Marsh & McLennan Cos.,” Dan Glaser, president and chief executive officer of the company, said during a conference call on Tuesday morning.

The acquisition provides “compelling value” for clients, colleagues and the respective shareholders of both companies, he said.

“This is a combination out of strength,” Mr. Glaser said. “Both firms are performing well, but we see the addition of JLT making MMC even stronger. This acquisition is about one word: growth.”

Marsh & McLennan anticipates annual cost synergies of about $250 million to be realized over the next three years and one-time integration costs of about $375 million, according to the statement. The transaction will be funded mostly from new debt financing, but also cash on hand, according to company officials.

“While the deal would at first be dilutive to cash earnings (due to intangible amortization), we view it positively as it expands MMC’s international brokerage business (JLT is big in the UK market),” Wells Fargo Securities LLC said in a statement issued Tuesday.

“The takeover is to happen via a fast­track scheme of arrangement, which requires clearance from 75% of votes at a specially convened meeting,” Wells Fargo said, noting that the offering already has secured the votes of JLT’s parent, Jardine Matheson Group, which owns 40.2% of JLT.

JLT has “a long track record” of generating average annual organic growth of 5% from 2012 through 2017, Mr. Glaser said.

Marsh & McLennan estimates the acquisition will increase its annual revenue to about $17 billion and add more than 10,000 employees to Marsh & McLennan’s 65,000-person workforce.

“JLT is a company that punches above its weight,” Mr. Glaser said. “On any given day, they could have beaten any broker on an account. It’s a tremendous injection of talent.”

Marsh & McLennan’s 2017 brokerage revenue was $14.04 billion, while JLT reported brokerage revenue of $1.87 billion for the year. Marsh & McLennan and JLT ranked No. 1 and No. 7, respectively, in Business Insurance’s latest ranking of the world’s largest insurance brokerages.

There is “natural attrition in the business,” he said, noting that Marsh & McLennan loses about 6,500 employees every year. “I would say that we and JLT just take a pause right now. The person who would fill that spot that just became empty may work for the other organization. We have to be cautious about how we manage our existing headcount and let that natural attrition that occurs in business work in our favor over time.”

Dominic Burke, group chief executive of JLT, will join Marsh & McLennan as vice chairman and serve as a member of the company’s executive committee.

“There’s very few transactions that we’ve done that hit on every point of our philosophy, and that’s why we’ve been watching JLT for a long time. We’ve been admiring them from afar, and when we saw an opening we decided to move swiftly,” Mr. Glaser said, citing a Sept. 7 meeting with Mr. Burke as propelling the acquisition forward.

“Our basic philosophy in a lot of strategy is to be meticulous and to be careful in our approach and our evaluation of alternatives, but when we need to strike, we can strike boldly,” he said.

Marsh & McLennan is “a conservative company” and has no budget or timetable generally when it comes to its acquisition strategy, but trust is an important factor, Mr. Glaser said.

“We’ll never do a hostile acquisition,” he said. “We want companies that want to be part of Marsh & McLennan Cos.”

Marsh & McLennan has expanded its reach in recent years via acquisitions under its Marsh & McLennan Agency L.L.C. operation — established in 2008 to serve middle-market clients.

“We’ll be more selective, but … we’ve allowed for some flexibility for the continuation of (Marsh & McLennan Agency’s) strategy,” Mr. Glaser said.

JLT was created in 1997 when Jardine Insurance Brokers PLC, which was formed almost 50 years ago, merged with Lloyd Thompson Group PLC, and it now operates in 40 countries.

“JLT makes us stronger in specialty risk broking, with deep expertise and capabilities in areas such as aerospace, energy and construction,” Mr. Glaser said. “They make us stronger in markets such as the U.K. and Australia.”

The United Kingdom is the second-largest country of business for Marsh & McLennan, with more than $2 billion in revenue and approaching 10,000 employees, not including the JLT revenue and employees.

“We believe the U.K. is a great place to do business,” Mr. Glaser said. “Sure, Brexit creates short-term uncertainty. So what? We are building a company that can perform well in the short term, medium term and long term, and anybody who thinks the U.K. is not a good place to invest doesn’t know Great Britain. We are happy to bet on Britain.”

Marsh & McLennan said it has committed bridge financing from Goldman Sachs Group Inc. to satisfy certain funds requirements of the U.K. Takeover Code to complete the transaction.

“U.K. regulations have strict rules governing takeovers of listed firms,” Marsh & McLennan Chief Financial Officer Mark McGivney said during the call. “One of these rules mandates that an acquirer has committed and dedicated financing in place at the time of the announcement. Accordingly, we’ve secured committed bridge financing for the full amount of the anticipated consideration. As we have discussed for several years, we have maintained substantial balance sheet flexibility in order to position us for just this type of opportunity.”

“We expect solid returns and only modest impact to our earnings in the near term,” he added.

Goldman Sachs acted as financial adviser, and Slaughter and May and Wachtell, Lipton, Rosen & Katz acted as external legal counsel to Marsh & McLennan. JPMorgan Chase served as financial adviser, and Clifford Chance Rogers & Wells served as external legal counsel to JLT.

“Starting from about 10 years ago when we were rebuilding some of the capabilities of the firm, we talked about that we needed to earn the right to do a large transaction,” Mr. Glaser said. “A large transaction would not have made sense for us five years ago or seven years ago. We needed to build a proper foundation. We did so.”

Mark Hofmann contributed to this report. 




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