Marsh & McLennan Companies, Inc. (MMC) and Kroll Inc. have announced that MMC will acquire Kroll, the world’s leading risk mitigation services firm, in a move that will “broaden significantly the range of MMC’s risk and insurance services businesses and enhance its leadership position in risk management services.”
The definitive agreement was announced after the close of the stock markets yesterday, May 18. It provides for MMC to acquire Kroll in an all-cash $1.9 billion transaction in which Kroll shareholders will receive $37 for each outstanding share of Kroll common stock they own. The price represents a 31.7 percent premium over Kroll’s closing stock price of $28.10 on the Nasdaq Exchange.
The need for the services Kroll provides has grown exponentially, as global and domestic companies become increasingly aware of threats from terrorists, Internet hackers, political extremists and plain old criminals. The company’s risk consulting service “provides a broad range of investigative, intelligence, financial, security, and technology services to help its clients reduce risks, solve problems, and capitalize on opportunities.” Many companies, particulalrly AIG, use Kroll’s services extensively to augment policy protections in areas such as Kidnap, Ransom and Extortion coverage.
Kroll is headquartered in New York with more than 60 offices on six continents. It employs a “multidisciplinary corps of more than 3,200 employees and serves a global clientele of law firms, financial institutions, corporations, non-profit institutions, government agencies, and individuals.” The company has four primary business segments: Consulting Services, Corporate Advisory and Restructuring Services, Background Screening Services, and Technology Services. For the year ended December 31, 2003, Kroll reported net sales of $485.5 million, and income from continuing operations, after restructuring charges, of $46.2 million. For first quarter 2004 net sales were $165.3 million, a 60 percent increase from first quarter 2003.
MMC Chairman and CEO Jeffrey W. Greenberg commented: “Our clients face a growing number of risks that are increasing in complexity and severity. We deliver risk services to respond to a wide spectrum of client needs, from advisory services to claims management, with the goal of helping clients to reduce their total cost of risk. The addition of Kroll will broaden and deepen the capabilities of our fast-growing risk consulting and advisory businesses by adding services which clients need to reduce the impact of an adverse event. Kroll has multiple high-growth businesses under a strong brand. It expands our capacity in several important sectors that complement our existing businesses, such as corporate restructuring, business intelligence and investigations, security services, employee screening, and electronic evidence and litigation support.
“This transaction is particularly attractive because we will be adding to our team some of the world’s best risk experts, including Jules Kroll, founder and executive chairman of Kroll, and Michael Cherkasky, chief executive officer of Kroll. Kroll’s business relationships around the world fit well with ours, will help us serve clients better, and will accelerate our revenue and earnings growth to increase value to shareholders.”
Jules Kroll seemed pleased with the deal. “In joining MMC, we become part of the industry leader in risk management, a company with a great management team, a history and culture of outstanding client service, and a great future,” he indicated. “We look forward to working with Jeff Greenberg and his colleagues and to delivering the benefits of this exciting transaction to our clients.”
Cherkasky added: “This transaction is another example of our commitment to maximizing shareholder value and is a winning proposition for our clients and employees alike. Our mission as the premier global risk mitigation firm remains the same. But by combining the world-class risk services practices of MMC and Kroll, we will offer a compelling range of services that will enable us to attract and serve more clients in more ways.”
The announcement noted that the combination of MMC and Kroll would “produce a number of important benefits for clients, including the following:
— Ability to Match Service Offerings to Client Needs: The acquisition of Kroll will enable Marsh to offer risk clients a combination of services which can be deployed in a way that provides unique benefits in mitigating the complexity and severity of risk. Marsh is distinguished for its advice to clients on operational risk, workplace risk, enterprise risk, and claims management. Kroll has professional expertise and a market leadership position in corporate restructuring, forensic accounting, business investigations, and electronic discovery.
— Expanded Processing Services: The acquisition of Kroll not only increases Marsh’s risk processing services capability, specifically to provide clients employee-screening, vendor-screening, and credit-screening services, but also provides the foundation for further expansion in processing.
— Global Reach: Like Marsh, Kroll has a global client base with a strong presence in Europe that strengthens the Marsh global risk consulting platform. Although Marsh and Kroll have clients in common, they have different sets of executive relationships that both firms can use to provide additional services to clients.
Completion of the transaction is expected to occur in the third quarter of 2004. MMC believes that cost savings and the additional revenues resulting from the combination of the two businesses will make the transaction accretive in 2005.
According to the bulletin, “the transaction was unanimously approved by both MMC’s and Kroll’s boards of directors. Kroll’s board recommends that Kroll shareholders vote in favor of the transaction at a shareholder meeting that will be scheduled as soon as practicable. Mr. Kroll, who owns 7.3 percent of Kroll’s shares, Mr. Cherkasky, and eight other members of Kroll’s senior management have committed to vote their shares in favor of the transaction.
“Upon completion of the transaction, Kroll will become part of Marsh Inc., MMC’s risk and insurance services subsidiary. Marsh Risk Consulting and Kroll will be combined under Mr. Cherkasky’s leadership. Mr. Kroll will be named a vice chairman of Marsh Inc.” The deal remains subject to statutory waiting periods and requisite approvals.
Messrs. Greenberg, Cherkasky, and Kroll, MMC chief financial officer Sandra Wijnberg, and Ray Groves and Roger Egan, chairman and president of Marsh Inc., respectively, along with Donald Birdsong, head of Marsh Risk Consulting, will discuss the transaction via teleconference and live audio webcast at 8:30 a.m. (EDT) on Wednesday, May 19. To participate in the audio webcast (which will be listen-only), as well as to view additional information about the transaction, go to www.mmc.com. A replay of the webcast will be made available.
A continuous telephone replay will be available beginning Wednesday, May 19 at 1:00 p.m. (EDT) and continuing through midnight (EDT) Wednesday, June 2. To listen to the replay, please dial (888) 203-1112. Callers from outside the United States may listen to the replay by dialing (719) 457-0820. The access code for both numbers is 647531.
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