Marsh & McLennan Companies (MMC) is set to acquire London-listed rival JLT in a deal valuing the firm at $5.6bn.
Under the terms of the transaction, JLT shareholders will receive £19.15 pounds per share, representing a 33.7 percent premium to the broker’s closing share price of £14.32 on 17 September.
The cash consideration equates to $5.6bn in fully diluted equity value, or an estimated enterprise value of $6.4bn. The firm said the transaction will be funded by a combination of cash in hand and proceeds from debt financing.
The deal not only cements MMC’s position as the world’s largest insurance broker but will also create the industry’s largest reinsurance broker based on 2017 revenues, according to analysis by Re-Insurance magazine.
MMC said that is expects the acquisition to increase its overall revenues to $17bn and add another 10,000 people to its global headcount.
The company said that it expects to achieve annual cost synergies of c.$250mn that will be realised over the next three years, adding that realisation of these synergies will result in a one-time integration cost of $375mn.
In a US Securities and Exchange Commission filing dated 18 September, MMC revealed that a substantial portion of the annual cost synergies could come from headcount reductions in addition to savings in real estate, IT, outside services and other initiatives.
The firm said that it expects a potential headcount reduction of between 2 to 5 percent of its total group workforce, across all geographies and “from a broad range of job categories”, including functional support areas such as finance, human resources, IT, operations, legal and administrative support staff.
With the combined group housing around 75,000 employees, this means that up to 3,750 jobs could be at risk.
In explaining the rationale of the deal, MMC said that the acquisition of JLT accelerates its strategy “to be the preeminent global firm in the areas of risk, strategy and people.”
“JLT's track record of strong organic growth and attractive geographic diversification enhance MMC's ability to accelerate growth and margin expansion across products and geographies,” it added.
“The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders,”remarked MMC president and CEO, Dan Glaser.
He added: “The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues.
“On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company."
Upon completion of the transaction, JLT group chief executive Dominic Burke will join MMC as vice chairman and will serve as a member of MMC’s executive committee.
Burke commented: “I am enormously proud of what JLT has achieved, founded on our people, our culture and our unwavering commitment to our clients.”
“MMC is, and always has been, one of our most respected competitors and I believe that, combined, we will create a group that will truly stand as a beacon for our industry.”
According to the Financial Times, discussions surrounding the deal only began on 7 September, when Glaser went to meet Burke.
MMC has said that it has received irrevocable undertakings from JLT's largest shareholder, Jardine Matheson Holdings, and JLT directors who collectively represent 40.5 percent of the issued and outstanding JLT shares in support of the transaction.
The deal is slated to close in spring of 2019, subject to necessary regulatory and shareholder approvals.