Willis chief executive, Joe Plumeri said to have expressed interest in MMC
Willis could be plunged into a global legal battle if it presses ahead with efforts to acquire larger rival Marsh & McLennan (MMC).
It is understood Willis, led by global chief executive Joe Plumeri, wrote to the board of MMC, indicating its interest in acquiring the group.
Legal experts said a deal, which would create a global insurance colossus, would spark legal actions and receive close scrutiny from competition authorities in the US, UK and possibly Europe.
Stephen Rose, competition partner at international law firm Eversheds, said: “A merger of Marsh and Willis would trigger anti-trust filings on both sides of the Atlantic and attract close scrutiny from regulators anxious to ensure the deal does not lessen competition in a concentrated market that is already in the regulatory spotlight.”
In the UK, the competition authorities will consider the size of the acquisition and the combined entity’s market share.
The Office of Fair Trading may recommend an investigation by the Competition Commission if the company being acquired has an annual turnover of more than £70m and if the companies have a combined market share of 25% or more.
Marsh UK’s brokerage is more than £490m. Combined with Willis, it would have a market share in the UK of about 20% of the broker market.
“A merger of Marsh and Willis would attract close scrutiny from regulator
It would not be the first time that Willis has expressed interest in MMC. In 2006, MMC rejected an informal acquisition offer by Willis. At the time, observers were not surprised that the offer was turned down, pointing to the potential shareholder value that MMC could build without selling.
More recently, MMC has come under pressure from investors, with some calling for the group to be broken up in the light of its poor financial performance.
Its broking arm Marsh has struggled in recent months, leading to the departure of its chief executive Brian Storms in September 2007. He was replaced by former AIG Europe managing director Dan Glaser.
Last month, the MMC board axed global chief Michael Cherkasky as it looked for new options for the business. The board of directors said a change in leadership would “best enable MMC to move forward and enhance shareholder value”.
While some have suggested this is code for a sale or break-up, others have speculated that the MMC board might look for other options and shareholders may not welcome a deal.
Hiscox director of mergers and acquisitions Charles Dupplin said: “If I were an MMC shareholder with a lame-duck MMC chief executive [Cherkasky] and a new jockey [Dan Glaser] for the injured racehorse that is Marsh, I would be tempted to wait and see.
“Willis will still be keen in a year and Dan Glaser may well be able to unlock the value Joe Plumeri sees.”
Creating a global insurance colossus
The potential takeover of Marsh & McLennan (MMC) by Willis would create a global insurance colossus worth over $20bn according to their market capitalisations of $15.1bn and $5.1bn.
Together they would control 35% of the US and around 18% of the UK brokered market, respectively. In the UK market, the combined brokerage of the two would be in the region of Ã‚Â£1bn, based on Marsh's 2006 revenues of Â£495m and Willis' of Â£421m.
MMC has over 60,000 employees, including 26,000 at Marsh, with locations in 100 countries. Willis has 16,000 employees spread across 300 offices, also in 100 countries.
The deal would entail a massive restructuring that could see the insurance broking functions of Marsh and Willis consolidated, with MMC's other divisions potentially being sold separately.