(Reuters) - Marsh & McLennan Cos Inc has agreed to buy British rival Jardine Lloyd Thompson for $5.7 billion as the world’s biggest insurance broker looks to expand its global presence and increase its focus on faster-growing niche insurance areas.
Shares in JLT, which reorganised earlier this year into three divisions and has been preparing for a so-called hard British exit from the European Union in March, leapt by 32.3 percent, just shy of MMC’s cash offer of 1,915 pence per share. MMC shares were down 3.4 percent in morning trading.
The acquisition is the latest in a series of deals in the insurance sector, which is struggling with stagnating premiums as insurers compete ruthlessly to win market share. Brokers, which get most of their revenue from commission on premiums, have felt the knock-on effect.
JLT Chief Executive Dominic Burke said the deal to create a company with annual revenue of $17 billion had been struck quickly and was first discussed formally on Sept. 7.
“We were not looking to sell, We were approached by MMC and it was a compelling offer,” said Burke, who will become vice chairman of the combined company.
Several London-based insurance analysts were taken by surprise by the announcement, given JLT’s relatively high valuation.
“If JLT has now ‘fallen’ it heightens the possibility of other bid approaches within the sector,” Panmure Gordon analyst Barrie Cornes said, adding that the company’s recent move into the United States had potentially been the trigger for Marsh to make the offer.
Still, Cornes said the offer was “fabulous” for JLT shareholders.
Other big deals in the insurance sector so far this year include France’s AXA buying Bermuda-based XL Group for $15.3 billion in March, after American International Group said it would buy reinsurer Validus for around $5.6 billion.
MMC’s takeover of JLT, which implies an enterprise value of about 4.9 billion pounds, boosts a risk and insurance business whose revenue rose 7 percent to $7.63 billion in 2017, or just over half of the company’s total sales.
Canaccord Genuity analyst Joanna Parsons said a counterbid for JLT from Aon, the most likely contender, was unlikely given the scale of the premium offered by MMC.
MMC said the deal is expected to achieve savings of about $250 million within three years of completion, adding that it expects to cut 2 to 5 percent of the combined company’s jobs.
The companies said investors representing 40.45 percent of JLT’s stock, including top shareholder Jardine Matheson Group, had already undertaken to support the tie-up.
And JLT’s independent directors, advised by JP Morgan Cazenove and Simon Robertson Associates, intend to recommend that shareholders vote in favour of the deal, they added.
JLT’s Burke said he expected the deal to close in the next six months and did not expect any regulatory or competition issues as MMC had agreed to take any steps needed.
Goldman Sachs was financial adviser to MMC, while Slaughter and May and Wachtell, Lipton, Rosen & Katz provided legal advice to MMC and Clifford Chance was legal adviser to JLT.
($1 = 0.7601 pounds)
Reporting by Arathy S Nair in Bengaluru; Additional reporting by Noor Zainab Hussain; Editing by Keith Weir/Alexander Smith/Sweta Singh