Merger, Management Buyout Seen as Putnam Spinoff Possibilities

Speculation that Marsh & McLennan might spin off its scandal-plagued Putnam Investments unit continues, with the Boston Business Journal now reporting that a sale, merger or management buyout are all seen as possibilities. The fact that MMC has been caught up in an insurance scandal of its own costing it an $850 million settlement makes a sale even more likely, because Putnam would probably fetch that amount or even far more, according to the paper. In fact, according to one analyst, Justin Fuller of Morningstar, Putnam accounts for nearly half of MMC's $32 stock value, which could put its price tag as high as $8 billion.

"It makes a lot of sense given what March McLennan has done and that Putnam is in turnaround," a source close to the two firms said.

Should the firm opt to sell Putnam outright, it is likely that MMC will pair it with its employee benefits and human resource unit, Mercer Consulting Group, sources say. If management were to buy the firm, it would probably cost between $4 billion and $6 billion, based on traditional valuations of 2% to 3% of assets.

However, a firm might hesitate to merge with Putnam since it's in recovery mode and its assets are nearly half of what they were at the end of 2000--$204 billion as opposed to $370 billion four years ago. Even before the scandal hit, Putnam began bleeding assets. The firm has lost money for 43 consecutive months, according to Financial Research Corp.