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Marsh & McLennan Companies (NYSE:MMC)

Q3 2010 Earnings Call

November 9, 2010 8:30 am ET

Executives

Brian Duperreault – President, Chief Executive Officer

Vanessa Wittman – Chief Financial Officer

Daniel Glaser – President, Chief Executive Officer, Marsh

Michele Burns – Chairman, Chief Executive Officer, Mercer

Michael Bischoff – Head of Investor Relations

Analysts

Keith Walsh – Citi

Brian Meredith – UBS

Larry Greenberg – Langen McAlenney

Meyer Shields – Stifel Nicolaus

Jay Cohen – Bank of America Merrill Lynch

Adam Klauber – Macquarie Group

Jay Gelb – Barclays Capital

Thomas Mitchell – Miller Tabak

Operator

Welcome to MMC’s conference call. Today’s call is being recorded. Third quarter 2010 financial results and supplemental information were issued earlier this morning. They are available on MMC’s webcast at www.mmc.com.

Before we begin, I would like to remind you that remarks made today may include statements related to future events or results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to inherent risks and uncertainties. In particular, references during this conference call to anticipated or expected results of operations for 2010 or subsequent periods are forward-looking statements, and MMC’s actual results may be affected by a variety of factors. Please refer to MMC’s most recent SEC filings as well as the Company’s earnings release which are available on the MMC website for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I’ll now turn this call over to Brian Duperreault, President and CEO of MMC.

Brian Duperreault

Thank you. Good morning, and thank you for joining us to discuss our third quarter results reported earlier today. I’m Brian Duperreault, President and CEO of MMC. Joining me and presenting on the call today is Vanessa Wittman, our CFO. I’d also like to welcome our operating company CEOs to today’s call – Dan Glaser of Marsh, Peter Zaffino of Guy Carpenter, Michele Burns of Mercer, and John Drzik of Oliver Wyman. Also with us is Mike Bischoff, our Head of Investor Relations.

I am pleased to report that in the third quarter, MMC produced strong revenue growth of 7%, or 4% on an underlying basis. We are seeing some signs that the effects of the Great Recession are diminishing; however, overall economic conditions remain weak. Also, the insurance services segment continues to face the challenges presented by soft market conditions in the global property casualty marketplace.

Even in this difficult operating environment, however, each of our four operating companies produced revenue growth on both a reported and an underlying basis. This is the first quarter this has occurred since 2007.

About six weeks ago, MMC held its first investor day under this management team. I was very pleased so many members of the investment community were able to attend, and many others took advantage of the opportunity to watch our live video webcast. The entire program, which included presentations by each of the heads of our operating companies as well as Vanessa’s financial overview, remains available for viewing on our website, mmc.com.

I would like to spend a few minute reinforcing some of the major themes I talked about at investor day in making the investment case for MMC. IN the 40 years after Marshall McLennan Companies became a public company in 1962, two of our most notable hallmarks were sustained growth in adjusted earnings per share and total return to shareholders. However, MMC operated in a crisis mode from late 2004 through the end of 2007. As a result, new management was installed nearly three years ago.

Since then, we have successfully resolved legacy issues that prevented the Company from operating at its fullest potential. Today MMC is comprised of four great companies – Marsh, Guy Carpenter, Mercer, and Oliver Wyman. Each is a leader in its field and is led by a strong management team focused on enhancing growth and revenue, and more importantly, earnings. Our goal is to establish MMC as an elite global growth company, not just in relation to our direct competitors but with respect to other leading global companies.

To return to a record of superior long-term performance, we will focus on four major pillars in the coming years. First, growth. We are committed to generating long-term revenue and earnings growth. MMC should produce long-term organic revenue growth at least equal to global GDP growth augmented by acquisitions; and a continuing focus on expense discipline should expand margins and lead to 10% growth in operating income in a multitude of operating environments.

We are beginning to see the results of this strategy in MMC’s financial performance for the first nine months of 2010 which is more indicative of our performance than any one particular quarter. Through the third quarter, MMC produced 11% growth in adjusted operating income. This was in an operating environment in which MMC’s underlying revenue rose 2% but adjusted underlying expenses were held to only 1%.

Also contributing to long-term earnings growth is prudent and effective capital management, including the disciplined redeployment of excess cash into accretive acquisitions and share repurchase. We have completed six acquisitions so far in 2010. Four of these were in the risk and insurance services segment, including Haight (phon) Companies, Thomas Rutherford, and the Bostonian Group. These were part of our Marsh McLennan agency strategy. We also acquired the insurance broking operations of HSBC.

In the third quarter, we completed two acquisitions at Mercer. In July we acquired Innovative Process Administration, a provider of health and benefit recordkeeping and employment enrollment technology; and in August we acquired ORC Worldwide, a premier provider of HR knowledge, data and solutions.

Total consideration for these acquisitions exceeded $500 million, 300 million of which was in cash. This illustrates our capacity to make investments in our businesses.

Another effective method of returning capital to shareholders and contributing to long-term growth in earnings per share is share repurchase. As I announced at investor day, the Board of Directors has authorized a $500 million share repurchase program. Since we have been in the blackout period related to third quarter earnings, we have not yet activated this program; however, now that we have announced our third quarter earnings, we will begin buying back our stock. Over time, effective capital management can translate compound annual growth of 10% into operating income to earnings per share growth approaching 13%.

Another element that contributes to annual shareholder returns is MMC’s attractive dividend. Reflecting the recently announced dividend increase, our current yield is 3.2%. Long-term shareholder returns of 16% are what MMC was able to achieve during it’s first four decades as a public company, and this is what we are targeting for the future.

The second pillar of our corporate strategy is maintaining low capital requirements. As a professional services firm, we do not require significant capital investments to successfully run our businesses. We therefore expect to maintain low capital requirements in each of our operating companies. In fact, we are targeting a level of capital expenditure in the coming year of approximately $230 million.

The third pillar is high cash generation. Our business generates strong cash flows; however, over the last few years we’ve used these cash flows to restructure operations and deal with legacy issues which averaged around $500 million per year, so our ability to reinvest in a classic growth manner was limited. Now that restructuring and legacy issues are largely behind us, we expect our businesses to generate over $1 billion of cash on an annual basis. Following dividend payments currently at 450 million, we’re left with approximately 550 million of excess cash that we can redeploy in acquisitions and share repurchase.

And finally, lowering our risk profile. Over the next several years, we have implemented enhanced organizational, operational and risk management measures, including a focus on enterprise risk management, that are designed to reduce the Company’s risk profile.

To summarize, our strategy is to focus the Company on the characteristics that create great value for investors – growth, low capital requirements, high cash generation, and a low risk profile. It is our belief that emphasizing these four pillars, successfully combined with strong business operating in global markets and disciplined capital and expense management, should produce superior long-term returns to our shareholders.

Now let me turn it over to Vanessa to review our third quarter results in more detail.

Vanessa Wittman

Thank you, Brian, and good morning everyone. I’ll begin with an overview of MMC’s consolidated earnings for the quarter; then I’ll discuss the results of the individual operating companies. I’ll close with some observations regarding MMC’s financial position.

On a GAAP basis, EPS in the third quarter was $0.30 which included $0.22 from continuing operations and $0.08 from discontinued operations. Discontinued operations primarily include the gain on the sale of Kroll, the related tax benefits, and Kroll’s operations in the third quarter. The related tax benefits were slightly higher than the preliminary tax benefit recognized in the second quarter.

In the third quarter of 2009, adjusted EPS was $0.48 which, as you may recall, included an $0.18 tax benefit. On an adjusted basis, EPS in the third quarter of 2010 was $0.27. Adjusted EPS includes $4 million of operating income from Kroll through the closing of the sale. This compares with Kroll’s adjusted operating income of $21 million in the third quarter of 2009. Accordingly, the sale of Kroll negatively impacted this year’s third quarter by $0.02 a share.

Due to declines in our private equity portfolio, which are recorded on a one quarter lag, we recorded an investment loss of $2 million in the third quarter. In last year’s third quarter, investment income was $22 million. Looking ahead to the fourth quarter, we anticipate investment income of approximately $15 million compared with $23 million in last year’s fourth quarter.

Interest expense in the third quarter of $60 million was similar to prior quarters; however, with the repayment of the $550 million debt maturity in September, we expect interest expense to decrease beginning in the fourth quarter.

Turning to the results of MMC’s operations, unless indicated otherwise, my references will be to underlying revenue, underlying expenses, and adjusted operating income. We achieved growth in both revenue and operating income in each of our businesses, not only in the third quarter but for the first nine months of the year.

On a consolidated basis, operating income rose 7% to $269 million compared with last year’s third quarter. On a reported basis, third quarter revenue for risk and insurance services rose 8% to $1.3 billion. Excluding fiduciary interest income, underlying revenue growth was 3%.

Operating income decreased 4% to $165 million from $158 million last year. Marsh had a strong quarter despite the continuation of soft market conditions in the global insurance market. On a reported basis, revenue rose 9% in the third quarter to $1.1 billion. On an underlying basis, growth was 3% reflecting a sequential improvement for the fourth quarter in a row. The strong performance in the third quarter was achieved with consistent revenue growth across all geographic operations.

The positive momentum in new business generation also continued in the third quarter. Year-to-date, global new business growth was 8%. Client retention rates also stayed strong, in line with the first half of the year. Despite an increase in pension expense, growth in operating expenses was 3% in the quarter and only 1% for the first nine months.

Guy Carpenter continued to generate revenue growth despite the significant headwinds of declines in pricing within the reinsurance markets and increased retentions by clients. On a reported basis, revenue increased 4% to $233 million. On an underlying basis, Carpenter’s revenue grew 3%. This is Carpenter’s seventh sequential quarter of revenue growth, an outstanding performance considering the operating environment. This growth reflects Carpenter’s high client retention and new business production, driven particularly by its international operations. This continues Carpenter’s strong new business over the past two years where it has gained market share from all segments within its competitive environment.

In our consulting segment, reported revenue rose 5% to $1.2 billion. Underlying revenue growth was strong at 6%. This represents the third consecutive quarter of growth and the highest growth rate at consulting in the past nine quarters.

Growth in operating expenses, including higher pension expense, was 5% for the quarter and only 1% through the first nine months. Operating income increased 11% from $130 million to $144 million. For the nine months, operating income rose 16% from 335 million to $387 million with margin improvement of 110 basis points.

Mercer’s reported revenue increased 6% in the third quarter to $881 million. Underlying revenue growth was also 6%, a marked improvement compared with last year’s third quarter that felt the full impact of the global recession.

Retirement consulting revenue, though down slightly from last year, was substantially stronger in the third quarter than the first half of this year, led by growth in Canada, Latin America, and Asia Pacific.

Health and benefits registered its strongest performance in two years. Revenue rose 8% in the third quarter driven by increases in the U.S. and Asia Pacific.

Rewards, talent and communications produced double digit revenue growth, it’s strongest performance since the first quarter of 2008. This was driven by growth in human capital consulting in the U.S., Canada, and EMEA as well as a resurgence of demand for compensation surveys. Outsourcing revenue was up 4% in the quarter driven by new client wins in the U.S. and Asia Pacific.

Affirming our strategy to provide enhanced investment solutions for our clients’ retirement plans, investment consulting and management increased 17% for the third straight quarter with strong growth in all geographies. Mercer’s operating income increased in both the third quarter and year-to-date.

Oliver Wyman also generated strong revenue growth in the third quarter which continues the improvement we have seen throughout this year. Reported revenue growth grew 3% to $322 million while underlying growth was 6%. Among its industry specialties, financial services representing almost 40% of revenue continued its outstanding performance. Revenue rose double digits for the third consecutive quarter, reflecting the improving demand from this sector.

Oliver Wyman also generated strong growth in the healthcare, transportation, and consumer sectors. Oliver Wyman produced strong growth in operating income and margin improvement for both the third quarter and the first nine months of the year.

Cash at the end of the third quarter was $1.7 billion compared with $1.5 billion at the end of the second quarter. In addition to our normal cash generation in the quarter, we received cash proceeds of $1.13 billion upon the closing of the Kroll transaction. Major uses of cash in the quarter included a $550 million debt maturity in September, $400 million for the Alaska settlement, a $200 million tax advantaged discretionary contribution to our U.S. pension plan, and $50 million for several small acquisitions.

It’s important to note as I outlined at investor day that there are substantial tax benefits associated with some of these actions. For example, we expect to receive a cash tax benefit of roughly $280 million from the sale of Kroll. We achieved this benefit because we carried back a tax basis loss on the sale of Kroll against a gain on the sale of Putnam we realized in 2007. We also expect cash tax benefits of $160 million from the Alaska settlement and $70 million from our discretionary pension contribution.

So in aggregate, we have over $500 million of cash tax benefits. Roughly $200 million should be received by the end of this year, $230 million in the first half of 2011, with the remainder realized over time. As you heard Brian say, we expect to begin our share repurchase program shortly.

With that, let me turn it back to Brian.

Brian Duperreault

Thank you, Vanessa. Operator, we’re ready to take questions.

Question and Answer Session

Operator

Okay, thank you. The question and answer session today will be conducted electronically. If you’d like to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. If you’re using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star, one on your touchtone telephone to queue for a question. We’ll pause for just a moment to assemble the queue.

We’ll take our first question from Keith Walsh with Citi.

Keith Walsh – Citi

Hey, good morning everybody. Two questions – first, for Dan just on brokerage. The plus-3 admittedly a lot better than what I was looking for, at least. But what I want to understand is why the 50 basis point decline on the margin. Maybe if you could help me understand why we’re not seeing the operating leverage there; and then I’ve got a follow-up for Michele.

Daniel Glaser

Okay, so let me approach this in a couple of ways. One, you know that our revenue in the third quarter is the lowest revenue that we have in the year, you know, quarter-by-quarter. And our expense base does not reflect that same seasonality, so our expenses stay pretty stable over the course of the year. So changes in expense have a more material impact on the third quarter than they would in any other quarter. So specifically to your question, my management team and I are very much focused on making sure that expense growth does not exceed revenue growth. I mean, that’s sort of a basic operating principle. So in direct answer to your question, I think you’d have to look at pension expense and the growth that we had in pension expense this quarter. That represented about half of that 3% increase, and so from that standpoint it really masks in this quarter our underlying performance.

Keith Walsh – Citi

Okay, that’s helpful. And then for Michele, the same question basically but a little different. The plus-6 in consulting, again, much higher than I was looking for; but you got 60 BPs of margin but it seems your operating leverage in this business maybe isn’t as great as it is in brokerage. Can you maybe talk to that a little bit?

Michele Burns

Sure. I think first of all, we had the same issues as Dan in terms of a one-time or pension expense difference—different in that if you compare it year-over-year, you get a much different answer than you would on a run rate basis normally. So you have to take that out and think about that a little bit differently. Otherwise, I think the company is perhaps somewhat less leveraged than a brokerage company. That said, we are in the business of producing scale businesses, so whether it’s outsourcing, whether it’s capital management, whether it’s our data business, all these have scale characteristics. So our expectation is that you will see positive leverage in this business as we enter growth, and growth especially looking like the growth that we were able to produce this quarter.

Keith Walsh – Citi

Okay, thanks a lot.

Brian Duperreault

Thank you. Next question, please.

Operator

Yes, we’ll go next to Brian Meredith with UBS.

Brian Meredith – UBS

Yeah, good morning. A couple questions here – the first one, back to Dan. Were there any headwinds in the quarter from the recent acquisition that you made, meaning was that a hurt to the margins potentially here?

Daniel Glaser

Well, the acquisitions overall for the year are not really going to do anything for us on the bottom line. I mean, they’ll be—I think in this quarter we had a 3 or $4 million benefit to earnings as a result of acquisitions, and so it’s overall—if you look at our acquisitions, the largest ones are the aggregate of the agencies, and you’ve got purchase accounting which works its way through, so from a margin standpoint won’t be a help for another two or three years. You know, we don’t have—because of our building with platform hubs, by definition we don’t have synergy with regard to those sort of acquisitions.

And then our other large acquisition during the year was HSBC insurance brokers, and really we’ve spent this year getting that business right. And from that standpoint, the synergy value from that will show up next year.

Brian Meredith – UBS

Okay, great. And then can you talk a little bit about exposures, what you’re seeing out there from an exposure standpoint. Is it flattened out, getting any better?

Daniel Glaser

Yeah, I would guess on the overall margins you would say it’s getting a little bit better, but certainly nothing that makes us overly excited. I mean, I did think that we had very broad-based growth this quarter. I mean, if I just put that in context a little bit, we had 31 countries that grew more than 5% organically, and of those countries 19 of them grew more than 15%. So there’s definitely not only some exposure movement but there’s some projects that are being done that had been taken off the table a while back.

Brian Meredith – UBS

Great. And lastly could you just comment on the pipeline for M&A what it looks like?

Daniel Glaser

Yeah, the pipeline for M&A looks great. I mean, we’ve got—you know, Dave Eslick and his team within the agency are very active. We’re talking to a lot of people, and I’ll just reiterate – we don’t have a budget or a plan in terms of what we have to acquire and when. What we really have is a strategy, and that strategy is a multi-year strategy. And so we’re talking to a lot of people. The first thing is, is there a fit and does the management team have experience in doing fold-ins and bolt-ons and that sort of thing? And then of course the economics have to make sense. But I’m very pleased with where we are on a pipeline basis, and so you’ll be seeing us doing acquisitions over the course of the coming months and years.

Brian Meredith – UBS

Excellent. Thank you.

Brian Duperreault

Okay, Brian. Next question, please.

Operator

We’ll go next to Larry Greenberg with Langen McAlenney.

Larry Greenberg – Langen McAlenney

Thank you and good morning. I guess this is for Vanessa. Is it too soon to give any color on pension expense for next year, and whether further contributions might be made this year?

Vanessa Wittman

Two pieces, I’m presuming, of your question, Larry. First, you’re spot on. It is too soon to make the call on next year’s pension expense. It’s a 12/31 calculation driven by the interrelationship of a lot of complicated factors. We also do not have a definitive plan for incremental contributions for the rest of this year.

Larry Greenberg – Langen McAlenney

Okay, thank you.

Brian Duperreault

You’re welcome, Larry. Next question, please.

Operator

We’ll go to Meyer Shields with Stifel Nicolaus.

Meyer Shields – Stifel Nicolaus

Thanks. Let me start with a question for Michele, if I can. Can you give us any guidance in terms of the relative margins within the various Mercer businesses? I’m asking because we’re seeing very varied organic revenue growth, and I’m trying to figure out what impact that has on the margins.

Michele Burns

We really don’t disclose relative margins, or even margins for Mercer individually. I think the way I might think about it is that the margin expansion you might see is particularly relevant in the scale businesses I mentioned in the last question.

Meyer Shields – Stifel Nicolaus

Okay, that’s helpful. I guess—I don’t know if this is for Brian or Vanessa, but should we anticipate share repurchases over, let’s say, a longer period of time to outpace the shares issued either in compensation or in combination of compensation and acquisitions?

Brian Duperreault

Well yeah, the point is to make—is to use the cash either through a repurchase or accretive acquisitions, so there is that competing situation. But with respect to share repurchases, certainly it would make sense to eliminate the dilution from the compensation side; and then with respect to the acquisitions, if they’re accretive, I guess I’m under less—I feel under less pressure if it was an accretive deal using stock as probably a good use of the stock, so I wouldn’t feel as compelled there. It’s more balance on future usages as opposed to what we did in the past, if that helps.

Meyer Shields – Stifel Nicolaus

Yeah, it does. And can we get any update on contingent commissions discussions that have been going on this year?

Brian Duperreault

Contingent commissions discussions. I guess that’s you, Dan?

Daniel Glaser

Sure. I mean, I think from our perspective we’ve been pretty consistent and pretty clear. We believe that contingent commissions should be part of a broader discussion around carrier revenue streams, and that all carrier revenue streams have the potential for a conflict of interest and so therefore we’re really focused on the internal systems and controls we have to manage conflicts, and also our transparency and disclosure practices. You know, in terms of contingencies specifically, we have said that we do not intend to take contingent commissions in our core brokerage business in the U.S. and Canada, and actually probably in a few large countries as well. But having said this, it doesn’t mean that we’re not looking to improve our carrier revenue stream. So we’re actively negotiating with carriers on basic commissions levels, on enhanced commissions, on fee for services; and we’ve been successful throughout this year in doing that, and I believe that will continue.

Meyer Shields – Stifel Nicolaus

Okay, thank you very much.

Brian Duperreault

Okay, Meyer. Next question, please.

Operator

We’ll go to Adam Klauber with Macquarie.

Brian Duperreault

Adam, are you there?

Operator

Adam, your line is open. Please check your mute function.

Brian Duperreault

Operator, why don’t we move to the next and maybe Adam can come back in?

Operator

We’ll go next to Jay Cohen with Bank of America Merrill Lynch.

Jay Cohen – Bank of America Merrill Lynch

Yeah, thank you. I just want to follow up on the pension expense going forward. While it’s too early, obviously, to forecast for next year, could you make an assessment though if you said things like interest rates, currency were going to remain the same for the balance of the year, given that assumption what would you expect for pension expense 2011 versus 2010?

Vanessa Wittman

Jay, I really think it’s misleading to make a call with even current interest rates when we’ve seen year-end volatility. For example, in 12/31/08, an overnight movement in the rate caused an incremental—fairly sizeable incremental expense. So I’m not comfortable speculating on today’s rates holding at 12/31.

Brian Duperreault

Yeah Jay, I think if we could do it, we’d do it. It’s just too complicated. It’s not fair for anybody, so when we have the number—you know, as soon as we feel confident, we’ll do it. I think we certainly did it last year when I did our fourth quarter earnings call, and we’ll certainly give you the information then.

Jay Cohen – Bank of America Merrill Lynch

That’s fine. That’s okay. We can wait for that, then. Second question – on the consulting side, can you talk about the revenue that’s associated with some of the deals that you completed in the quarter?

Brian Duperreault

Michele?

Michele Burns

Sure. A couple of deals – the IPA and ORC, one in the outsourcing and the health and benefits arena, and the second in the mobility business. And the revenue characteristics will be helpful for us next year. We did see some revenue come through in this quarter with regard to ORC, but both of those are deals that will provide new capabilities for the firm that will lead to revenue growth both independently as well as in bundles. And in the case of IPA specifically, it will allow us to build out product and solutions that compliment our existing capabilities, so individual revenue from that organization as well as revenue growth, we will see coming because that product and solution just gets better with the IPA technology that we acquired.

Jay Cohen – Bank of America Merrill Lynch

Can you quantify how much revenue they would add annually just from the deal that you—from the existing revenue that they had, just for modeling purposes from our standpoint.

Michele Burns

Neither deal is significantly large in terms of revenue number. I would be hesitant to go off the top of my head, but I think maybe Mike can follow up with an estimate from what we’ve disclosed. Both of those deals, the way I would look at them from their incremental revenue from them alone will not be a material amount to Mercer overall, but as they are bundled with our other services they will add additional value. So it’s two pieces to that – organic from them alone as well as what we’re able to do with them as a bundle. I think it’s probably best that we come back to you on that one internally.

Michael Bischoff

Well as Michele said – this is Mike Bischoff – in our schedules you can see that for Mercer acquisitions, we’re 1% and that’s roughly 900 million, so it was about 8 or 9 million in the quarter, Jay.

Jay Cohen – Bank of America Merrill Lynch

Great. Thank you.

Brian Duperreault

You’re welcome. Next question, please.

Operator

We’ll go next to Adam Klauber once again.

Adam Klauber – Macquarie Group

Thanks. Is the organic growth we’re seeing in brokerage, do you think that’s sustainable? And what sort of growth did you have in the U.K. and U.S.?

Daniel Glaser

Okay, so a couple of things. As I’ve said in previous quarters, you know, it’s a difficult marketing environment and so it’s hard to actually see any real trend. I mean, I am happy that this is the fourth quarter in a row of sequential improvement in our growth levels, but it is a very challenging market particularly in mature markets. So when I look at the quarter and the year, we’re 1% year-to-date in terms of growth. We’re 3% in the quarter, and so I believe positive territory is sustainable but I wouldn’t necessarily say that any particular number within that range would be sustainable. I think we’d be in that range.

The other thing is in terms of the U.S., we do disclose the U.S. Canada division – you know, Canada represents about 10% of the overall division, and that division’s growth in the quarter was 3%. We don’t disclose the U.K. separately from EMEA although I do want to say that the U.K. is the largest country by far in the EMEA division and that that division grew 1% in the quarter.

Adam Klauber – Macquarie Group

Great. One more follow-up – you talked about acquisitions. What’s the potential over the next 12 months to see a large sort of franchise defining-type acquisition?

Brian Duperreault

I guess I should answer that one, eh? Well, large franchise-changing acquisitions by definition aren’t that common, so you know; but the betting instincts in me would say it’s probably not a great chance. We have a strategy that I think is going to do us a great service over time, and that is each—and it’s not limited to Marsh. I mean, we are out, as Michele pointed, we have a couple of acquisitions at Mercer this quarter that keep the momentum going, add to our capabilities, enhance our franchise, fill us out; and if you go back to my four pillars, that growth – we want it to be sustainable. We want it to be long-term. We want you to be dependent on it. You could—of course, we’ve got to execute. So it’s not necessary for us to make those kinds of acquisitions. And when you look at our portfolio of companies, and I emphasized in the beginning we have four fabulous companies, and so they’re pretty good in their own right. It’s hard to find where we’re really so lacking that we need to make that change.

However, having said all that, we are opportunists. If opportunities arise where we could do something that would absolutely be in your best interests and the rest of those who follow us and our shareholders, we’re going to do it; but frankly, you just can’t bet on those kinds of things, but you can, I think, more easily bet on our ability to find good quality companies that add year after year, year after year, to the Company. And that’s the strategy we’re employing.

Adam Klauber – Macquarie Group

Great. Thank you very much.

Brian Duperreault

You’re welcome. Next question?

Operator

We’ll go next to Jay Gelb with Barclays Capital.

Jay Gelb – Barclays Capital

Thanks. My first question is what’s the expectation for issuance of shares as related to compensation?

Brian Duperreault

Well I think if you look at our history, it’s fairly consistent. I don’t think we have any plans to do something out of norm with what we’ve done in the past. I don’t think I can say anything more than that, Jay.

Jay Gelb – Barclays Capital

Okay. Have you quantified that at all?

Brian Duperreault

We go through the process starting soon when we evaluate the year. Of course, we have to—it is based on performance so performance isn’t quite finished yet. But we have budgets and plans and expectations, but the actual quantification takes a little more time.

Jay Gelb – Barclays Capital

I see. And then more broadly, can you talk about the potential to expand the risk and insurance services adjusted margin in 2011? It looks like it’ll be mostly unchanged in 2010, so just wanted to give you an opportunity to maybe talk about next year.

Brian Duperreault

Well, long-term it’s our plan to expand. We’re going to expand that margin kind of the old-fashioned way, right? We’re going to continue organic growth and manage our expenses. We believe we can do that over time. Now 2011, you know, we may have some more headwinds as Dan pointed out. We’ve continued to have headwinds in both economics and in the soft market conditions that we’re facing, the low interest rates, all of those things. Pensions, you know, have been an issue. So it just makes the job a little harder but the expectation is we will find some way to get the margins expanding. I don’t know what 2011’s margin’s going to be, but it’s certainly our plan to continue to maintain the discipline around both playing offense and defense.

Jay Gelb – Barclays Capital

Thank you.

Brian Duperreault

You’re welcome, Jay.

Operator

Well go next to Thomas Mitchell with Miller Tabak.

Thomas Mitchell – Miller Tabak

Miller Tabak, yes. As I understood the discussion, you have dedicated all the proceeds of the Kroll sale but you’re expecting major tax benefits in cash form coming in in the fourth quarter and next year. Is it reasonable to assume that you will redeploy most of those cash tax benefits to share repurchases?

Brian Duperreault

Well, Thomas, it’s a nice position to be in when we have the cash. I pointed out we’ve been in—you know, we’ve been putting cash out for other reasons. Now we can actually use it, and I told you what we would do. Once we pay the dividend, we look at the rest of this cash we either have on hand or we’re generating, and we’re looking for accretive acquisitions or share repurchase. So those are the two choices and they remain the two choices, and I’m not going to handicap which one’s going to get most of the money.

Thomas Mitchell – Miller Tabak

Okay, thanks.

Brian Duperreault

Okay.

Operator

And I’ll turn it back over to Mr. Duperreault for closing remarks.

Brian Duperreault

Okay, well thank you very much. Thanks for joining us today and for your continued interest in the company. And before I close, I just want to make sure that if you haven’t seen the investor’s day presentation, go to mmc.com. I think you’ll find it very interesting and again, thank you and we’ll talk to you next quarter. Bye.

Operator

This concludes today’s presentation. Thank you for your participation.

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