Top pension firms set to combine

The largest and second largest group pensions companies in Ireland may be set to merge, following the launch of an agreed $2.04 billion (£1.45 billion) takeover involving two of the world's largest insurance brokerages.

US-based Marsh & McLennan, the world's biggest insurance brokerage, is to tighten its grip on the international insurance industry by launching an agreed takeover of British counterpart Sedgwick Group plc.

The takeover will lead to a combined Irish operation, which will be the largest in the insurance market. Marsh & McLennan, Sedgwick, Aon and Coyle Hamilton are currently the biggest players.

However, Sedgwick owns Irish Pensions Trust, the largest player in the employee benefits or group pensions market, while Marsh & McLennan owns Mercer, the number two player. A combined operation could control over 50 per cent of the market, according to industry estimates, and merger and competition issues may have to be addressed. It is possible that one of the company's may have to be sold by the new group, if it is found that the merged operation is in contravention of competition law.

Marsh & McLennan employs more than 300 people in Ireland and has offices in Dublin, Cork, Limerick and Belfast. Sedgwick is understood to employ around 200 staff. Last night sources said the takeover might not lead to rationalisations, as the loss of employees can often lead to the loss of contracts.

Internationally, the takeover would create a group with annualised brokerage revenues of close to $6 billion and would widen the revenue gap between itself and the world's second biggest broker Aon, by around $2 billion.

Under the surprise offer, Marsh & McLennanis paying 225p sterling (264p) for each Sedgwick share, 58 per cent more than its closing share price on Monday. The US group is also offering £11.25 sterling for each Sedgwick American depository share (ADS).

Marsh & McLennan said the cash offer would lead to enhanced shareholder value and would be earnings enhancing from the year ending December 2000.

Marsh earned a pre-tax profit of $662.4 million in 1997 with earnings per share at $2.45, or $2.39 on a diluted basis.

The US group has already got irrevocable undertakings from holders of 225.74 million shares, representing 40.7 per cent of Sedgwick's share capital.

Marsh's chairman, Mr A.J.C. Smith described the offer as beneficial for clients, employees and shareholders saying it would "enable us to improve the breadth and quality of service to our clients while providing substantial operational efficiencies".

Sedgwick's future as an independent insurance broker has been questioned recently since US buyout firm Kohlberg Kravis and Roberts last month made an agreed $1.4 billion bid for another British broking giant Willis Corroon.

Two quick takeovers have now virtually wiped out most of the British presence in the global broking industry. "This is the end of the broking sector as we know it," said a London-based insurance analyst with an European bank.

The uncertainty surrounding Sedgwick increased two weeks ago when it took an £80 million exceptional charge on its first half profits due to mis-selling of pensions.

Sedgwick was one of the many financial services companies caught up in Britain's pensions mis-selling scandal, which began in 1988 and is expected to cost £11 billion to sort out under pressure from regulators and government.