Rumours of a possible £130 million (US$240 million) takeover of U.K. broker Heath Lambert by rival Jardine Lloyd Thompson could have some foundation in truth, say analysts. Media reports have suggested that the two companies are close to finalising the details of the takeover. Both Heath Lambert and JLT refused to speculate on the rumours.
“The deal certainly seems feasible,” says Joanna Parsons, equity analyst at ABN Amro. “Whether there is any truth in the speculation is hard to tell, but the strength of the rumours suggests there could be.”
Parsons says a deal could make sense. “The Heath Lambert management has done plenty to tidy up the business to make it more attractive in recent years,” she says. “A sale has been on the cards for a while. And it’s logical that JLT should be one of the possible buyers.” Parsons believes that Heath Lambert is performing well and that its biggest liability – a £210 million (US$387.5 million) shortfall in its pension scheme – has effectively been resolved. Following the company’s restructuring in May 2005, the scheme is set to be transferred to the U.K. Pension Protection Fund.
Heath Lambert also has a strong retail broking presence in the U.K., and Parsons points out that it would become one of the top three retail brokers in the U.K. if it merged with JLT. Other positive points for JLT are that by adding Heath Lambert’s operations to its own, it would increase the company’s sterling income and therefore reduce its exposure to the fluctuations of the dollar. In addition the deal would add to JLT’s non-marine reinsurance operations. On the negative side, Parsons believes that, despite the fact that Dominic Burke, CEO of JLT, has a background in retail broking, there could be cultural difficulties associated with the merger of a company that has historically been a wholesale broker with one which is largely retail. “The important question is, does JLT want to take this route?” says Parsons. “It could be distracting at a time when many might say it should be concentrating on sorting out the problems in its London market operation JLT Risk Solutions.”
JLT recorded disappointing results for 2005. After-tax profit was £51.2 million (US$94.5 million), down from £59 million (US$108.9 million) in 2004. Its 2005 profit before tax, exceptional items and impairment charges was £76.8 million (US$141.7 million), down from £96.2 million (US$177.5 million) in 2004. Risk Solutions performed particularly badly – its turnover fell 4% to £156.7 million (US$289.1 million).
JLT shareholders seem pleased by the prospect of a deal. The company’s share price rose by £0.285 (US$0.53) on Monday 3 July to £4.005 (US$7.40) – up 7.7% from close on the previous Friday.