For those who ask me about why I left Marsh...

Marsh & McLennan falls as broker unit CEO leaves
Mon Sep 17, 2007 11:32am EDT

NEW YORK (Reuters) - Marsh & McLennan Cos Inc (MMC.N: Quote, Profile, Research) shares fell to a 13-month low on Monday after the world's largest insurance broker ousted the chief of its biggest unit and Morgan Stanley downgraded its shares to "underweight."

Late Friday, Marsh said that Brian Storms, who was head of its insurance brokerage unit for only two years, had departed, effective immediately. The unit, which helps companies find commercial insurance, had underperformed its largest competitors, Aon Corp (AOC.N: Quote, Profile, Research) and Willis Group Holdings (WSH.N: Quote, Profile, Research).

Morgan Stanley analyst William Witt upgraded Aon to "equal-weight," or neutral, and downgraded Marsh & McLennan to "underweight."

In a research note, Witt said he expected "turbulence" at Marsh & McLennan to benefit Willis as well.

Other analysts also saw danger in the frequent management changes at Marsh & McLennan, where many key brokers have left for other firms.

"The departure of Brian Storms is a net negative," Goldman Sachs insurance analyst Thomas Cholnoky said in a note. He had already placed Marsh & McLennan on his "sell" list earlier this month.

In morning New York Stock Exchange trade, Marsh & McLennan shares were down $1.33, or 5.1 percent, at $24.85. Earlier they fell to $24.82, their lowest since August 2006.

The stock had not closed below this level since October 2004, when then-New York Attorney General Eliot Spitzer filed a civil lawsuit charging the company with receiving bribes and bid rigging.

LEVERAGED BUYOUT TALK

Investors and analysts said the shares were supported by speculation about another leveraged buyout try for the New York-based brokerage and consulting firm, which has a market capitalization of more than $16 billion.

"What happened to Storms reflects greater organizational discord, but it also opens the door to alternative financing," Morningstar analyst Bill Bergman said in an interview.

Last year, Willis Chief Executive Joseph Plumeri and Kohlberg Kravis Roberts & Co., which is among the largest private equity firms, were rumored to be considering a bid, a report that Plumeri never denied.

"But with the current credit crisis, I think the window for an leveraged buyout has passed," Keefe Bruyette & Woods analyst Clifford Gallant said in an interview.

A Marsh spokeswoman declined to comment.

Gallant said the challenge for Marsh & McLennan CEO Michael Cherkasky would be to fill Storms's post quickly, before competitors gain even more of its market share.

Marsh has struggled since the 2004 investigation, paying $850 million in 2005 to settle with Spitzer and other regulators and giving up nearly that much in annual revenue to meet their more exacting standards.

The shake-up that followed the 2004 lawsuit -- begun by Cherkasky and continued when Storms was hired in late 2005 -- led to a slew of terminations and prompted many brokers to flee to rivals such as Aon and Willis.

While the majority of Wall Street is either neutral or negative on Marsh & McLennan, the company still has supporters, including Matthew Heimermann of JPMorgan.

"Low expectations make leadership change a net neutral," he said in a note. "A Marsh insider, or former insider, could help boost moral as well as improve management's ... credibility."

(Reporting by Ed Leefeldt)

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