$1.8 billion deal creates world's largest broker Marsh & McLennan buys Johnson & Higgins amid shrinking industry profits

March 13, 1997|By BLOOMBERG NEWS

NEW YORK -- Marsh & McLennan Cos. said yesterday that it would buy Johnson & Higgins for $1.8 billion in stock and cash, forming the world's largest insurance brokerage.

The acquisition will allow Marsh & McLennan to offer insurance brokerage and employee benefit consulting from its 145 offices worldwide. The combined companies had 1996 revenue of $5.3 billion.

The companies are combining their more than 36,000 employees as the insurance industry seeks to cut costs amid waning profits. Marsh & McLennan would reclaim its position as the largest broker of insurance, a place it lost this year to Aon Corp.

"You're looking at a huge brokerage with a cockpit seat in the world market," said Giri Bogavelli, who helps manage $2.8 billion, including Marsh & McLennan shares, for San Francisco's Spare, Kaplan, Bischel & Associates. "This is a great deal."

Marsh & McLennan would pay about $600 million in cash and the rest in stock for the closely held brokerage and consulting firm. Johnson & Higgins' revenue exceeded $1.2 billion last year.

Marsh & McLennan surged $7 to close at $129 in New York Stock Exchange trading of 915,900 shares, almost four times its daily volume in the past three months.

The company has grown both by acquisition and by developing new businesses. It bought mutual fund group Putnam Investments in the 1970s and formed William M. Mercer consultants. With J. P. Morgan & Co., it created the reinsurance company Mid Ocean Reinsurance and Underwriters Capital Ltd.

The combination with Johnson & Higgins was not driven principally by a desire to reclaim the top ranking in the field in terms of size, Marsh & McLennan Chairman A. J. C. Smith said.

"We never aspired to be the biggest," Smith said. "Our aspiration is to be the best and most profitable, and we do believe that this move will contribute to both of those."

Combining the companies will save them at least $150 million a year by streamlining back office and sales operations, Smith said, and those savings could be twice that figure. Smith declined to specify any layoffs.

The transaction, which is expected to close by the end of June, could start adding to Marsh & McLennan's profits this year, depending on how soon the two companies complete the sale, Smith said.

Marsh & McLennan's net profit last year climbed 14 percent to $459.3 million, or $6.34 a share, from $402.9 million, or $5.53 a share, in 1995. Its revenue totaled $4.15 billion, up from $3.77 billion the previous year.

The company's insurance arm accounted for 46 percent of revenue, down from 52 percent in 1995.

Pub Date: 3/13/97

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