Broker to pay $4.5m a quarter until mid-2017


Arthur J Gallagher will pay out more in related costs than it received in settlement from its high profile court battle with members of its top UK team, the broker’s latest accounts show.

Gallagher sued former Gallagher International chief executive David Ross, chief financial officer Mark Mugge and adviser Christopher Keey in March this year, accusing the trio of orchestrating departures of senior team members to rival broker Towergate and diverting acquisition opportunities from Gallagher.

The trio vehemently denied the allegations and both Ross and Mugge counter-sued.

Towergate and its new backer Highbridge paid Gallagher £20m to settle the case in August this year. David Ross is now Towergate’s chief executive and Mark Mugge its chief financial officer.

Gallagher’s third quarter results show that Gallagher made a $31m (£20m) gain from the settlement, which translates to a net amount of $22.3m after costs and taxes.

But the accounts also show that Gallagher will pay related expenses of $4.5m a quarter up to and including the second quarter of 2017.

Assuming the $4.5m expenses start in the fourth quarter, Gallagher will pay a total of $31.5m in costs related to the case, spread out over the next seven quarters.

In a conference call with analysts last Wednesday, Gallagher group chief financial officer Doug Howell confirmed that the costs cancel out the settlement gain.

In response to a question from Janney Montgomery Scott analyst Robert Glasspiegel, Howell said: “These are incremental expenses and if you add it all up, it ends up being fairly close to what the settlement ended up being.”

Howell described the expenses as “retention agreements that we needed to do solidify our folks there [in the UK] and some additional headcount to that was required in order to work on this.”

He also said that the amounts were “related to the defection of the management team, and not to the core basic business of running the brokerage operation” and that “the lions share” of the retention payments were “in the management ranks”.

The news comes as Ross takes up his new role as chief executive of Towergate today.

He was originally due to take up his new role in early 2016, but the settlement of the court case, which was due to be heard in February 2016, allowed him to join Towergate earlier than thought.

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