According to the Financial Times on Monday, Marsh & McLennan Companies Inc. (MMC) has put up Kroll, its corporate investigations wing, for sale for approximately $1.3 billion (£864 million). The announcement has attracted many interested bidders such as Carlyle Group, Apax Partners, General Atlantic and BC Partners, along with a couple more trade bidders.
Ever since it had been bought by the company in 2004 for $1.9 billion, Kroll proved to be a poor strategic fit for Marsh & McLennan. The business also contributed significantly to Marsh & McLennan’s first-quarterly loss in May 2008 when the company recorded a $425 million write-down related to Kroll. Of late, the company has laid off thousands of its employees and sold off unwanted units of Kroll while seriously mulling over the plan of vending off the Kroll business once and for all.
Besides, while Kroll’s pioneering efforts in corporate investigations also expanded into computer security and restructuring, Marsh & McLennan has been rightsizing its business to primarily concentrate on its core insurance broking, reinsurance and corporate restructuring businesses. This has also helped in its decision to sell Kroll.
Estimate Revision Trend
Over the last 30 days, six of the 11 analysts covering the stock have lowered the estimates for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of 51 cents per share, which would be up by 27.3% from the year-ago quarter.
The absence of upward estimate revisions for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with three positive surprises. The average remained positive at 24.5%. This implies that Marsh & McLennan has surpassed the Zacks Consensus Estimate by 24.5% over that period.
Marsh & McLennan’s fourth quarter adjusted earnings of 38 cents per share were a penny ahead of the Zacks Consensus Estimate and also up from 36 cents reported in the year-ago quarter.
Results were aided by strong margin improvement in the Risk and Insurance Services as a result of improved profitability at Guy Carpenter, offset by an increase in expenses, lower interest and investment income and the strengthening of the U.S. dollar. Moreover, Marsh & McLennan’s Risk Consulting and Technology business that includes Kroll’s operations declined 6% year-over-year. We believe, given the critical sustainability factor, the decision to sell Kroll appears the right one for the company.
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