James Dean reviews the fourth quarter results of Marsh and Willis
Marsh parent company Marsh & McLennan (MMC), and fierce broking rival Willis, have been in the news recently following speculation that Willis will take over its altogether bigger rival. In the two companies’ fourth quarter results, released this week, there was a small surprise for Willis (and a nasty – if not completely unexpected – one for Marsh): Willis revenues were $10m higher than MMC’s. It's a major reversal given that, at the end of 2006, MMC’s revenues were $78m higher than Willis.
MMC blamed restructuring costs for fourth quarter results that were anticipated to be poor, but still fell short of expectations. Net income fell to $85m, compared to $226m last year – a fall far greater than analysts expected. MMC attributed $44m to costs associated with its ongoing restructuring programme, and $13m was spent on fees from 2004’s legal battle with former New York attorney general Eliot Spitzer. In total, expenses climbed 15% to $2.7bn.
The drop in income represents a loss of approximately 24 cents per share over the year. However, revenues rose to $2.9bn from $2.7bn.
On the flip side, Willis beat expectations, although it still posted a fall in net income, from $148m to $95m. This represented a decline in EPS from 94 cents to 66 cents. Revenues rose to $615m from $598m in the same period a year ago. On top of this, the company said its 2006 results were propped up by a one-off $71m tax credit.
MMC shares were trading on the NYSE at $26 and Willis shares at $30.85 as Insurance Times went to press.
Meanwhile, reports suggesting that Prudential could be broken up and sold on in a £15bn deal has renewed speculation of investment from China. Ping An, China’s second largest insurer, has £11.25bn to spend on overseas acquisitions, and a Chinese newspaper recently linked it to a £7bn stake in Prudential. It has already bought a considerable stake in Fortis, worth around £1.3bn. China’s largest insurer, China Life, is also looking to acquire overseas.
Prudential is attractive to Chinese insurers in part because of its existing operations in Asia. However, Barrie Cornes, of Panmure, played down the potential for a split. He said: “While we can’t out such a move, we would find it surprising and think that in the short term no such move would take place.”