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NEW YORKMarsh & McLennan Cos. Inc. has agreed to sell its Putnam Investments subsidiary to Montreal-based Power Corp. of Canada for $3.9 billion, the Wall Street Journal reported Friday.
The deal is expected to be announced early next year pending fund-investors' approval, the report said, citing unnamed people familiar with the matter.
Calls to MMC and Power Corp. on Friday were not immediately returned.
In a reversal of its previously stated position, New York-based MMC in September said it was exploring possible alternatives for its Boston-based investment management unit, citing "repeated inquiries" from interested parties (BI, Sept. 25, 2006).
The financial services giant has been under pressure to shore up its operations following a host of regulatory and legal issues that have afflicted Putnam and its insurance brokerage unit, Marsh Inc.
In 2003 and 2004, Putnam entered into agreements with the Securities and Exchange Commission and state authorities in Massachusetts regarding excessive short-term trading by former Putnam employees in Putnam mutual fund shares. Putnam paid a total of $110 million in restitution and civil fines and penalties.
In addition, MMC and Putnam also have received complaints in more than 70 civil actions based on allegations of market timing and, in some cases, late-trading activities, according to SEC filings.
Reacting to news of the agreement, analysts at New York-based Bear, Stearns & Co. Inc. said a straightforward sale of Putnam would be fully taxable and therefore likely negative for MMC shares.
"We had been estimating a roughly $4.2 billion value for Putnam in our sum-of-the-parts analysis, and we had also been anticipating a more tax-friendly exit than an outright deal," the analysts said in a report. Furthermore, they noted that many investors with whom they've spoken were expecting a "substantially higher sale price."
On a positive note, however, the analysts said capital generated from the sale could be used for share buybacks and/or debt reduction and could make a buyout of MMC more attractive.
Rumors of a buyout emerged earlier this year following news that Willis Group Holdings Ltd. made an unsolicited, informal offer to acquire MMC over the summer (BI, Oct. 23, 2006). The move was an apparent attempt to capitalize on MMC's challenges following New York Attorney General Eliot Spitzer's fraud and bid-rigging lawsuit against the company and the resulting $850 million settlement.