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MMC Duperreault hire dilutes Willis bid talk

The arrival of Brian Duperreault at the helm of Marsh & McLennan Cos (MMC) has reduced the likelihood of an imminent takeover bid by Willis Group Holdings, reflected in the rising share price at the smaller broker following the news.

Initial reaction from analysts and investors to the appointment has been favourable, with the well respected Duperreault - the former ACE CEO and chairman who helped found the Bermudian (re)insurer in 1985 - a figure seen as capable of focusing MMC on its core business, primarily at languishing broking arm Marsh.

As MMC president and CEO, Duperreault succeeds Michael Cherkasky, who was axed in December last year amid investor pressure as a result of the group's flagging performance and share price.

"I think it's a move in the right direction," one US investor told The Insurance Insider.

"With Duperreault in place they will be much more focussed on costs and production. And internally there'll be a level of respect he will garner that Cherkasky never garnered."

David Small, analyst at Bear Stearns, added that the 60-year-old's career at ACE, and previously AIG, would serve him well, despite a lack of direct experience in broking.

"Additionally, Duperreault understands the issues that face a large multi-national organisation unlike his predecessor," he said, adding the veteran's relationships in the insurance industry "should help Marsh retain clients and improve relations with underwriters".

The move was also welcomed by analysts at Morgan Stanley, who upgraded MMC shares from Underweight to Overweight on the appointment, predicting an uplift in the group's stock, as they set a target share price of $33.

Describing Duperreault as a "seasoned and, in our opinion, extraordinarily capable CEO", analyst William Wilt said: "Instead of facing 2008 without a new CEO (or with a new but unproven CEO) investors will probably be willing to look beyond any negative operational news (or downward management of expectations) and place greater value on an expectation for higher future earnings power."

The arrival of Duperreault - a move mooted by The Insurance Insider last year following the axing of then Marsh CEO Brian Storms - has dampened M&A speculation surrounding the firm.

Observers also suggest an imminent break up of the group is less likely, at least in the short term, despite recent revelations that activist investors put pressure on MMC to sell profitable divisions, such as consultancy firms Kroll and Mercer.

As previously reported, Willis was linked earlier this month with an audacious bid for its rival, purportedly in the form of a letter written to MMC's board expressing its interest in opening discussions.

The broker is thought to have the backing of Kohlberg Kravis Roberts - the private equity firm that bought Willis only to take it public again at vast profit - and possibly Nelson Peltz, the activist investor who recently acquired a stake in MMC.

But it seems Willis chief Joe Plumeri may have to wait if he is to execute a mega deal at the helm of the broker.

"I guess it puts [any Willis deal] on the backburner for the timing being," said one US investor. "But the split up of the company is still likely to come under consideration."

Another leading US investor commented: "I don't see any reason why you would bring in Duperreault just to sell the company. Maybe you bring in Duperreault to help assess the situation, and then maybe you sell the consulting business, if you believe that will lead to material wealth creation for the MMC shareholder.

"But the issue isn't that the consulting business is being undervalued, the issue is that the earnings at Marsh stink."

He suggested Duperreault's appointment "buys [MMC] some time".

"It will placate the activist shareholders for the moment. You've got a guy who is generally well respected and he's going to need time to come in and work," he added.

Wilt, meanwhile, said the leadership at MMC may also have an impact on Willis, which he downgraded to Equal-weight.

"We don't expect an immediate, negative impact on Willis' prospects. But part of the bull case on Willis was that it would make inroads largely at the expense of MMC. Those prospects just became more challenging, we think," he explained.

Shares in Willis were up 1.22 percent at $36.42 at time of writing. MMC shares, meanwhile, were up 1.54 percent to $27.78.

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