Ring the Lutine Bell and inscribe another name in the leatherbound register at Lloyd’s of London. No ship has been lost at sea. Instead, mark the passing of Jardine Lloyd Thompson, one of the few independent listed groups still operating in the Lloyd’s insurance market.
No wonder chief executive Dominic Burke admitted to feeling emotional. Shareholders should blink back happy tears too, and unlike JLT bosses they get no retention bonuses. Marsh & McLennan, one of the world’s largest insurance brokers, is paying £4.2bn for its smaller UK rival. That is a steep price to keep consolidation at full sail.
Mr Burke negotiated direct with Marsh boss Dan Glaser. Does a premium equivalent to 38 per cent of the three-month average share price reflect a deep meeting of minds? Or just the failure of City speculators to drive up the price when, for once, leaks were lacking?
Either way, the pair struck a deal at an enterprise value equivalent to 16 times forecast ebitda, a cash earnings measure, according to S&P Global data. That is well ahead of multiples for larger listed brokers. It still makes sense for Marsh. The broker is targeting savings of $250m a year. Taxed and capitalised conservatively, these should cover the £1.2bn premium.
Hurrah for efficiency. Pity there seems to be little enthusiasm for it among some at Lloyd’s. This is the last big, member-owned exchange in London. Aside from the Lutine Bell, quaint traditions include liquid lunches for underwriters and steep admin costs. John Neal is the latest chief executive with the thankless task of reforming the 330-year-old institution.
In the absence of cataclysms bad enough to drive up demand, a flood of global capital into insurance has been pushing premiums down. Like ships, brokers and insurers must be run tightly to keep an even keel. A lesson there for members of Lloyd’s. In local pubs a ringing bell has a meaning all its own: time’s up, gentlemen, please.
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