The subject line on the analyst's note from David Small at Bear Stearns said it all, “Christmas comes early for MMC shareholders,” following the announcement today that Mike Cherkasky, the embattled president and CEO of Marsh & McLennan Companies, is on his way out the door–a move I suggested was inevitable in my blog back on Dec. 10.
While I very much doubt my blog was the last straw (especially since I suggested that Mike probably wouldn't be gracefully forced out until mid-year 2008), comments like mine certainly reflected a widespread dissatisfaction within the investment community that MMC itself acknowledged today.
MMCs financial performance in 2007 has fallen far short of our expectations,” said Stephen R. Hardis, the company's non-executive chairman. “The Board has taken this performance into account, and listened to concerns raised by some of the companys largest shareholders in recent quarters, in making this change.”
At the same time, Mr. Hardis rightfully praised Mr. Cherkasky for steering MMC through some very tough times. Indeed, had it not been for the relationship, based on trust, that Mike enjoyed with Eliot Spitzer, Marsh would have had a much more difficult time settling bid-rigging and contingency fee abuse charges.
MMC is a venerable institution that might not be here today were it not for Mike Cherkasky,” according to Mr. Hardis. “His leadership and crisis management skills in the wake of the New York attorney generals action in 2004 enabled MMC to weather a perfect storm and positioned the company for future growth. We all owe Mike an enormous debt of gratitude for his invaluable contribution.
MMC's board announced that it had begun its search for a new CEO, with Mike sticking around in the meantime as a caretaker.
Mr. Small thinks the move is long overdue, and in fact that Mike should have been tossed before he was given the chance to pick Marsh's new CEO, Daniel Glaser, after parting company with the person he had previously chosen to run the broker (some would say the one who ran it into the ground), the aptly named Brian Storms.
“We think the timing of this release is somewhat awkward,” Mr. Small wrote. “In our view, Mr. Cherkasky should have been let go when [Marsh CEO Brian] Storms was let go, as it was clear then that his plan was not working.”
He went on to say that “to allow Mr. Cherkasky to choose a new CEO of Marsh was a mistake, in our view, as it should have been one of the most important decisions of a new MMC CEO. The decision to allow Mr. Cherkasky to choose a new CEO of Marsh when there were questions about Mr. Cherkaskys overall performance is surprising given his poor choices in terms of management throughout his tenure at the company.”
Piling on, Mr. Small added that “we wonder if in order to find the high-caliber CEO that is necessary to fix this organization,” whether MMCs board “will have to allow the [new] CEO to hand-select a new leader for the overall Marsh business. This situation should lead to continued uncertainty within the organization, and we dont expect operating results to improve over the next two quarters.”
I would cut Mike some slack here. With Marsh at sea, Mr. Glaser, given his prior experience at Marsh, along with major leadership roles at Willis and AIG, makes him a good choice to lead the effort to turn the troubled brokerage around. I can't imagine the new MMC CEO would have a better option than Mr. Glaser.
That said, Mr. Glaser better move fast to achieve more positive results, and watch his back once the new MMC CEO is on board.
These are indeed tough times at the world's biggest brokerage, as Mr. Small noted that “the problems at MMC, and Marsh in particular, have only gotten worse throughout 2007, and our recent channel checks infer that the lackluster business trends continue. Given this continued poor performance…we question the ability of Marshs risk and insurance business to stand on its own at this point.”
That brings up another major question–will MMC's new leader have marching orders to break up the company to maximize shareholder value? That move was first suggested by a Canadian private equity firm, K.J. Harrison & Partners, back on Dec. 10. (Click here to read that story.)
An analyst with Bank of America, Alain Karaoglan, raised that possibility again in his reaction to today's announcement. He wrote that the “potential sale of the company is now possible. We believe that new management and the Board could be more open to unlocking shareholder value to investors through a sale of Marsh & McLennan or sale or spin-off of its operating units.”
He added that “the company possesses a number of valuable franchises that can generate strong, free cash flow with minimal capital requirements and legacy liabilities to a potential acquirer.”
Given the cheap dollar on the global market, this could be a prime opportunity for a major European or even Asian player to buy a still very important retail insurance distributor at a substantial discount, considering the exchange rate. I expect a move to happen before year-end 2008!
What do you folks think???
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