If Marsh & McLennan Companies had not gotten the price it did for Putnam, it would have pursued other avenues for the divestiture of its investment firm subsidiary, but a spin-off would probably have crippled the new company with debt, MMC's chief executive explained.

"This is an important transaction for MMC and its shareholders," said CEO Michael Cherkasky. "We will receive an attractive price for Putnam, strengthen our ability to focus on our core businesses, and significantly enhance our financial flexibility."

However, he added during a Feb. 1 conference call to discuss the sale, "if it hadn't been this kind of price, it could have been a different decision for us."

MMC--parent company of the Marsh insurance brokerage firm--sold Putnam Investments for $3.9 billion to Great-West Lifeco Inc., a financial services holding company controlled by Canada-based Power Financial Corp. The all-cash deal, expected to close in the middle of the year, is subject to regulatory approval.

The sale will be financed through a combination of loans and management investment, said Raymond McFeetors, president and CEO of Great West Lifeco, during a Feb. 1 news conference.

Mr. Cherkasky said the decision to sell Putnam came about after the company received several unsolicited bids. There was also a strategic decision made that MMC needed to concentrate on risk and human capital services, and that the investment firm did not fit with those plans, he added.

A spin-off of Putnam would not have been in the best interest of shareholders, according to Mr. Cherkasky, because the stand-alone company would have been burdened with too much debt and would not be in a strong financial position to survive a downturn in the markets.

Putnam, ranked as the 10th-largest investment firm, handled $192 billion in assets under management as of the end of 2006, MMC reported.

The deal includes no transfer of debt to Great-West. According to Capital IQ, MMC lists its current debt at $5.08 billion on its balance sheet. During its conference call, MMC executives would not state how much debt Putnam would have been burdened with in a spin-off.

Mr. McFeetors' very positive description of Putnam's sale price prompted criticism from at least one analyst who questioned whether MMC got sufficient value.

In an analyst's note on the deal from Bear Stearns, headlined "Prince to pauper," David Small wrote that "while the purchase price equals what has been recently reported in the press, it is at the low end of what many, including ourselves, had been valuing the unit."

However, Mr. Cherkasky responded that the sale would not have taken place if MMC had not gotten the price it was looking for. "We know we won," he said. "We believe it is a great transaction for us and they believe it is a great transaction for them."

Mr. Cherkasky indicated that besides paying down debt and buying back stock, the sale will also allow MMC to begin making acquisitions. He did not indicate when such deals would be taking place.

"In our view, the most positive aspect of the deal is that it is all cash," wrote Mr. Small. However, he added that "we do see several potential negatives," including the fact that no debt was transferred, and that there may be a 10-cent dilution in earnings-per-share on an annualized basis.

Going forward, said Mr. Small, "we believe investors will be focused on how [MMC] management plans to use the net proceeds from the sale--capital management, acquisitions and/or debt reduction."

He added that "without the announcement of a significant capital management program, such as a buyback, we would not anticipate much lift to the [MMC] shares in the near term."

Finally, he noted that "since Putnam is being sold without its debt, we anticipate that a meaningful portion of the proceeds will be allocated to debt reduction, limiting share repurchase activity."

Ed Haldeman, president and CEO of Putnam, speaking during the Great-West news conference, said the investment firm's management team will remain intact, and that the fund will show significant improvement in the fourth quarter when MMC releases its financials. Mr. McFeetors said Putnam will operate as a separate company with its own board of directors.

"We are excited and delighted to be a part of Great-Western," said Mr. Haldeman. "This is in the best interest of all of Putnam's constituents."

On reports of comments that Mr. Cherkasky made last week during the annual leadership conference in Davos, Switzerland--to the effect that MMC might be seeking other suitors for Putnam--Mr. Haldeman said the deal was never in question. He added that Mr. Cherkasky's comments only reflected the CEO's interest in obtaining the best value for shareholders.

Special Reports /

MMC Sold Putnam Once Price Was Right, Says CEO, Citing Hurdles Facing Spin-Off

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