Marsh & McLennan Cos., the world's No. 1 insurance broker, said on Tuesday it agreed to acquire Kroll Inc. for $1.9 billion in cash, expanding the company's risk consulting and advisory business.
The deal will broaden Marsh's corporate risk capabilities at a time when such services are increasingly in demand. Kroll provides a variety of corporate risk consultancy services ranging from employee background checks to fraud investigations and has seen client demand soar in recent quarters.
"We've been building this business because we've been seeing steady increases in client demand over the last several years," said Jeffrey Greenberg, Marsh's chairman and chief executive, in an interview.
"Kroll has a business that has been doing similar things but offering different services," Greenberg said. "We think we'll be able to present clients a more complete set of services and more effective services through our business combination."
Terms of the transaction call for Marsh, based in New York, to pay $37 per share for Kroll. That represents a nearly 32 percent increase over the company's closing price of $28.10 on the Nasdaq market on Tuesday. Marsh closed on Tuesday at $42.74, up 15 cents.
Kroll jumped 30 percent to $36.51 in after-hours trading on INET while Marsh fell slightly to $42.10.
The deal is expected to add to Marsh's earnings by one to two cents in 2005, and two to four cents in 2006. The companies hope to close the transaction in the third quarter of this year.
The acquisition comes as Marsh, traditionally a low-profile company, works to move past a variety of regulatory investigations that kept the company in an unwelcome media spotlight for several months.
Its money management unit, Putnam Investments, was the first company to be charged in the mutual fund trading scandal, ultimately paying a $110 million fine. And just last month Marsh itself was dragged into New York Attorney General Eliot Spitzer's insurance industry probe.
While revenue in its insurance business has been strong traditionally, industry analysts said it may be falling off some. The company posted a 12 percent gain in risk and insurance services during the recently completed first quarter, but that was down from a 13 percent fourth quarter gain and 15 percent third quarter increase.
Adding Kroll could help offset any declines quickly. The company saw its net sales jump 71 percent last year to $485.5 million, while net income more than doubled to $46.2 million. Kroll will be combined with Marsh Risk Consulting and run by Kroll CEO Michael Cherkasky.
Greenberg said investors can expect to see future acquisitions outside the company's core insurance business.
"We have been steady acquirers, usually of businesses that have been smaller than Kroll, and we've created a lot of shareholder value, as has Kroll" he said. "So I think you can expect to see future acquisitions."
Kroll founder Jules Kroll has agreed to vote his 7.3 percent stake in the company in favor of the transaction, as have eight other members of Kroll's senior management.
Jules Kroll will also serve as a Marsh vice chairman after the deal.
Greenhill & Co. provided Marsh with financial advice during negotiations while Goldman Sachs and Morgan Joseph advised Kroll.