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NEW YORK -- The big just keep getting bigger.
Sedgwick Group P.L.C. announced last week that it will become part of Marsh & McLennan Cos. Inc., which offered to pay L1.25 billion, or about $2 billion, to acquire the world's third-largest broker, outbidding rival Aon Corp. in the process.
The deal, expected to close at the end of October, ends speculation over Sedgwick's independence in a world where M&M and Aon have acquired six of the world's top 20 brokers since 1996, giving new meaning to the term "megabroker."
Executives from M&M and Sedgwick say the combined firm brings together highly talented people, a broader depth of resources and more global reach.
Many clients of the two companies are generally positive about the deal and the added global strength it gives their brokers. But a number of risk managers, including clients, expressed concern in general about the potential for diminished choice and competition due to rampant consolidation in the commercial insurance marketplace (see story, page 62).
The deal comes as Sedgwick's future was again thrust in the spotlight by last month's announcement that rival independent Willis Corroon P.L.C. was the target of a bid by Trinity Acquisition P.L.C. to purchase a majority stake in the broker (BI, July 27). Last Tuesday, the day the M&M/Sedgwick deal was announced, Trinity extended its L951 million ($1.56 billion) offer by two weeks but the next day reduced the timetable and conditions of the deal (see story, page 63).
Most of the recent rumors surrounding Sedgwick involved a potential combination with either Willis or Aon. The deal with M&M, however, surprised few industry observers, who said it was only a matter of time before Sedgwick tied the knot with someone.
"It's the kind of surprise you get when your great uncle who's 96 dies," said Russell R. Miller, chairman of Russell Miller Inc. in San Francisco. "It's something everyone expected but didn't know when it was going to happen."
For M&M, acquiring Sedgwick comes as it completes the integration of Johnson & Higgins, which it acquired last year for $1.8 billion (BI, March 17, 1997).
Combined, M&M and Sedgwick create an even larger behemoth in the insurance brokerage world, with total 1997 brokerage and consulting revenues of $5.95 billion and roughly 46,000 employees in about 600 offices.
The integrated entity will serve a huge percentage of commercial insurance buyers.
M&M/Sedgwick together accounts for some 33% of the brokerage revenues generated by the Top 100 U.S. brokers, according to Business Insurance's annual survey of agents and brokers (BI, July 20). Among the world's 10 largest brokers alone, the combined entity generates 45% of total brokerage revenues. The other megabroker -- Aon -- draws 30% of the top 10's brokerage revenues, and 23% of the top 100 revenues.
The combined M&M/Sedgwick will retain the J&H Marsh & McLennan name in North America and be known as Sedgwick Marsh & McLennan throughout the rest of the world, with some exceptions based on local languages.
"Our strategy has always been to expand our range and depth of our services," said A.J.C. Smith, chairman and chief executive officer of M&M in New York. "Sedgwick is a company that has professional strength internationally in a way that we think rivals our own and rivals the kind of professional strength J&H in the U.S. brought to us."
John T. Sinnott, CEO of J&H Marsh & McLennan, added that Sedgwick brings to the table a very strong middle-market business, which J&H Marsh & McLennan has been trying to penetrate, and a strong claims management services operation, which J&H Marsh & McLennan has unsuccessfully dabbled in in the past.
Furthermore, Sedgwick adds strength all over the world and compliments many of M&M's specialty businesses in London, Mr. Sinnott said, pointing specifically to credit and political risks, marine, energy and aviation insurance services.
By joining forces, M&M and Sedgwick will bring clients "extremely high-level and high-quality expertise," Mr. Sinnott said.
"Our clients need the best professional advice they can get. And when you put quality people together and let them use their intellectual capital together, you get a higher level of professional advice," he said.
Sedgwick, which was not shy about its desire to partner with another company, approached M&M regarding a potential merger, said CEO Rob White-Cooper, who will become chairman of Sedgwick Marsh & McLennan upon completion of the deal.
"To drive Sedgwick forward and to invest in the future on behalf of our clients. . .we needed a partner," he said.
After talking with a variety of different firms, including Aon, "M&M was our preferred partner," he said, pointing out that Sedgwick employees liked and had respect for a number of J&H Marsh & McLennan people whom they knew from competing against them and through various joint initiatives.
Under terms of the transaction, which is subject to regulatory approval and other conditions, M&M will pay 225 pence ($3.68) for each Sedgwick share and L11.25 ($18.42) for each American Depositary Share.
Based on Sedgwick's 142.5 pence ($2.33) stock price last Monday, the day before the deal was announced, M&M's offer represents a 58% premium. Sedgwick's stock price hit 212 pence ($3.47) last Friday.
Executives say the deal will strengthen many M&M operations in addition to brokerage services.
The combination of William M. Mercer Cos. L.L.C., an M&M subsidiary and the world's largest benefit consulting firm, with Sedgwick Noble Lowndes will create an even more dominant force in the employee benefit arena (see story, page 63).
Guy Carpenter & Co. Inc., M&M's reinsurance brokerage arm, also will receive a boost from the addition of Sedgwick Re. Combined, however, they are not likely to unseat Aon Re Worldwide from its position as the world's largest reinsurance intermediary.
M&M also will gain Sedgwick Claims Management Services Inc., a leading workers comp claims administrator that was ranked as the third-largest third-party administrator, based on $2.18 billion in claims paid on behalf of self-insurers in 1997 (BI, Feb. 16).
While executives at both firms acknowledge there are some redundancies between their global operations, they have yet to determine how many offices will close and how much head count will decrease.
M&M's Mr. Smith, however, said he anticipates a smooth integration.
"We are pretty pleased with the way we put together J&H and M&M," he said. "We expect the same kind of thing to happen with Sedgwick."
Mr. Smith added that he anticipates the Sedgwick deal will yield about $225 million in annual savings for the broker, the same amount in savings that J&H brought to the table.
Sedgwick Chairman Sax Riley will become a director of M&M's board, joining Mr. White-Cooper, upon completion of the deal. Quill Healey, chairman and CEO of Sedgwick Inc. in the United States and vice chairman of the parent company, will become chairman of J&H Marsh & McLennan (Americas), working closely with Robert J. Newhouse III, president of the operation.