IT Value

Marsh Bogged Down by Kroll’s Goodwill

The Kroll acquisition has not turned into the the gem it was hailed to be.
Stephen TaubMay 7, 2008

Marsh & McLennan Cos. took a $425 million goodwill impairment charge for the first quarter ended March 31. The company said it took the non-cash charge in connection with its assessment of Kroll.

Under the accounting rule known as FAS 142, Goodwill and Other Intangible Assets, companies are required to write-down the value of acquisitions if the market value of the asset declines.

The insurance and risk management firm stressed there is no tax effect related to the impairment charge, nor any impact on its cash flows, tangible equity or debt covenants. However, as a result of the goodwill charge, Marsh reported a first-quarter net loss of $210 million. Excluding the charge, and including discontinued operations, net income was $215 million, compared with $268 million in the first quarter of 2007.

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Marsh bought Kroll, the risk mitigation services firm, for $1.9 billion in cash in 2004. At the time, the Marsh hailed the deal as a great opportunity for it to expand client services in the area of risk. However, the business has been a disappointment for Marsh, underscored by the write down.

Indeed, Brian Duperreault, who was named Marsh’s Chief Executive Officer in January, called Kroll’s results “disappointing” in a conference call in February, according to Bloomberg. Further, critics assert that Kroll does not fit into the rest of Marsh’s businesses, and Duperreault may feel the same way. In a conference call held on Wednesday, the CEO asserted that, “There are businesses in Kroll that do not necessarily fit Â… We will seek ways to divest these businesses,” reported the wire service.

Marsh reportedly rejected a bid by a private equity firm to buy the embattled division earlier this year, but it plans to separate Kroll’s corporate advisory and restructuring operations. “We continue to evaluate Kroll to identify those businesses that have the greatest growth potential within MMC’s portfolio,” Duperreault said in a statement released on Wednesday.

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