Private Equity Firm Calls For The Breakup Of Marsh & McLennan

One challenge facing the new chief executive of Marsh, Daniel Glaser, will be calls for a breakup of his corporate parent, Marsh & McLennan Companies, to maximize shareholder value and protect the individual company's worth.

Toronto, Canada-based K.J. Harrison & Partners called last week for the breakup of New York-based MMC. The company is not merely a casual observer, having held more than one million shares of MMC's stock since 2004.

Jim Harrison, the chief executive officer of K.J. Harrison, said in a statement that his company wants shareholders to vote on a resolution to separate Kroll (MMC's risk management subsidiary) and Mercer (its benefits consulting arm) from the insurance brokerage services of Marsh and reinsurance intermediary Guy Carpenter.

"In our view, holding companies are effective only when they demonstrate that they can add value through excellence in capital allocation and management selection and retention," said Mr. Harrison. "Marsh & McLennan is currently doing neither."

He said Marsh, "which was the gold standard" in the industry, is now falling far behind Aon Corp. and Willis Group Holdings in profitability.

The fact that the company has been unable to retain good people, and therefore is losing business to competitors, underscores its inability to improve earnings, he said, contending that both Mercer and Kroll's earnings are being hurt by Marsh's poor performance.

In an interview with National Underwriter, Mr. Harrison called the current combination inefficient, and said it would be better to break the firms up than try to replace current management.

While he did not know what the odds are of his proposal actually getting on the agenda of MMC's annual shareholder's meeting, he said that if there are enough shareholders who agree with his firm's sentiments--and he believes there are--then there is a good possibility it would come up for a vote.

"We wouldn't go through all this trouble if we did not think this was a possibility," said Mr. Harrison.

In an e-mail, a representative with MMC said that "Marsh & McLennan's board always considers shareholder suggestions and is fully committed to enhancing shareholder value."