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Fitch mulls Marsh & McLennan ratings downgrade on JLT acquisition

Fitch mulls Marsh & McLennan ratings downgrade on JLT acquisition

Fitch Ratings Inc. may downgrade Marsh & McLennan Cos. Inc.’s A ratings following its $5.6 billion acquisition of Jardine Lloyd Thompson Group PLC, the ratings agency said on Friday.

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 will be funded mostly from new debt financing, but also cash on hand, and Marsh & McLennan has committed bridge financing from Goldman Sachs Group Inc. to satisfy certain funds requirements of the U.K. Takeover Code to complete the transaction.

Fitch has placed MMC’s ratings under review with negative implications, reflecting “the expected increase in near-term debt and related increase to financial leverage as measured by debt to EBITDA, above levels acceptable for the current rating category,” Fitch said in its statement. “Increased debt will also result in lower interest coverage. Fitch’s rating sensitivities for a downgrade will be met for these key factors.” 

“The rating action also reflects the inherent execution risk and longer-term integration risk associated with a transaction of this size, which is larger than what Fitch perceived to be MMC’s acquisition appetite,” the rating agency continued. “These risks include uncertainty tied to realizing anticipated expense savings and retaining key employees and clients going forward.”

The rating review will be resolved, and Fitch expects to downgrade Marsh & McLennan’s ratings by one notch to ‘A-’ with a negative outlook upon completion of the transaction-related debt financing, according to Fitch.

“The negative outlook will reflect the longer-term acquisition integration risk as well as the continued near-term elevated debt level and the effect on associated financial ratios,” the ratings agency said.

Marsh & McLennan’s acquisition of JLT should result in positive business and operational synergies in the long term, Fitch noted.

“The transaction creates a larger, more diverse entity with complimentary operating franchises in specialty insurance and reinsurance brokerage and employee benefits consulting services,” the ratings agency said. “The acquisition expands MMC’s international profile with JLT’s existing presence in the U.K., Asia and other emerging markets.”

A Marsh & McLennan spokeswoman could not be immediately reached for comment.






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