Dec. 29 (Bloomberg) -- Marsh & McLennan Cos., the world's largest insurance brokerage, agreed to sell its Putnam Investments asset management unit to Canada's Power Corp., according to a person familiar with the negotiations.

Power, which controls Canada's biggest mutual-fund company through its Power Financial Inc. unit, will pay $3.9 billion, the Wall Street Journal reported earlier today. Analysts had valued the Boston-based firm at $3 billion to $4.5 billion.

The deal will remove a challenge for New York-based Marsh & McLennan, which has lost about a third of its stock market value since a 2004 lawsuit over insurance sales practices. Putnam's managed assets, hurt by lagging fund performance and probes into alleged trading abuses, dipped to $180 billion in June -- their lowest level since 1997.

``Now that somebody else has to worry about Putnam and its reputation, it is good news for Marsh,'' said Meyer Shields, an analyst at Baltimore-based Stifel, Nicolaus & Co. who has a ``hold'' rating on the stock. ``It's good that a deal is getting done. There had been some concern.''

Marsh, which announced in September that it would seek offers for Putnam, said earlier this month that a sale was uncertain. The transaction may be announced early next year after Marsh gets approval from Putnam employees who own shares in the company, the Journal reported. Putnam mutual-fund shareholders and the board that oversees the funds must also endorse the deal, the paper said.

Chief Executive Officer Michael Cherkasky has said the firm doesn't complement Marsh's other major units, which sell insurance, consulting and security services. UniCredito Italiano SpA and Amvescap Plc were among other bidders, according to published reports.

`Fish or Cut Bait'

``We had enough interest that we needed to in fact make a decision -- fish or cut bait,'' Cherkasky, 56, said in an interview Dec. 7.

Cherkasky wasn't available when called at home earlier today, and Nancy Fisher, a spokeswoman for Putnam, declined to comment. Power Corp. Chairman Paul Desmarais and spokesman Edward Johnson didn't return calls to their offices.

The company would have after-tax proceeds of $2.54 billion assuming the $3.9 billion is paid in cash and a 35 percent tax rate applied, according to Jay Cohen, an analyst at New York- based Merrill Lynch & Co. who has a ``buy'' rating on the stock.

The $3.9 billion is about 26 times Cohen's estimate of Putnam's 2007 after-tax income, a ``healthy multiple,'' he said. Marc Serafin of New York-based Morgan Stanley called it ``in line'' with his estimate, adding many investors may have hoped for higher.

IGM

Shares of Marsh fell 6 cents to $30.66 in New York Stock Exchange composite trading. The stock has increased 8.9 percent in the past three months. It's still 34 percent lower than before New York Attorney General Eliot Spitzer sued over alleged insurance bid-rigging on Oct. 14, 2004.

Marsh's credit-default swaps yesterday fell to their lowest since Aug. 4 in New York. Contracts based on $10 million of the company's debt fell to $39,498 from $39,662 on Dec. 27, according to data compiled by Bloomberg.

Credit-default swaps are financial instruments based on corporate bonds and loans that are used to speculate on a company's ability to repay debt. A decline indicates an improvement in credit quality.

Montreal-based Power will use Putnam to enter the $10 trillion U.S. asset management market. Power Financial, majority owned by Power Corp., controls IGM Financial Inc., Canada's biggest mutual-fund company with C$105 billion under management as of Nov. 30. It also owns the majority of Great-West Lifeco, the country's third-largest insurer.

`Foothold'

Power Corp.'s stock rose 21 cents to C$35.29 in Toronto. Power Financial's was up 37 cents to C$37.69.

``What this will do is give them a decent foothold in the U.S. for future expansion down the road,'' John Aiken, an analyst at Dundee Securities in Toronto, said earlier this month. ``Scale is important in the mutual-fund business and it's hard to build from zero.''

Power Corp. is controlled by Montreal's billionaire Desmarais family. Paul Desmarais, 79, is Power's executive committee chairman and Canada's fifth-richest man, according to the Canadian Business magazine Web site.

Putnam had more deposits than withdrawals in October, marking the first monthly inflows in three years, Cherkasky said in a Nov. 1 conference call with investors. Assets under management rose $9 billion in October and November to $191 billion.

First Inflows

During the three years through October, Putnam's U.S. stock funds returned less than stock funds at 18 of the 20 largest fund firms, according to a ranking by Russel Kinnel, an analyst at Chicago-based Morningstar Inc.

Putnam was also the first firm to face civil fraud allegations in an industrywide probe of fund trading abuses.

The U.S. Securities and Exchange Commission and Massachusetts officials sued in October 2003, saying the company didn't stop managers from making excessive trades that diluted returns for long-term investors. Lawrence Lasser, Putnam's CEO, was removed a month later. By March 2005, the company had agreed to pay at least $193.5 million to settle the suits and reimburse shareholders.

Consolidation in the fund industry is increasing as rising stock markets increase returns for a business that gets paid a percentage of the assets it oversees. Earlier this year BlackRock Inc. paid $9.4 billion for Merrill Lynch & Co.'s mutual-fund division in the largest deal in the industry's history.

Brokerage Revenue

Cherkasky is selling Putnam as the company's insurance businesses show signs of recovery following Spitzer's 2004 lawsuit. Revenue from its brokerage units fell 1 percent to $1.27 billion in the third quarter, the smallest quarterly decline since Spitzer said Marsh had colluded with insurers to rig bids.

``We think that, that business is going to start to grow,'' Cherkasky said in the Dec. 7 interview. He replaced CEO Jeffrey Greenberg days after the suit was filed and oversaw an $850 million settlement in January 2005. The company didn't admit or deny wrongdoing.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net

Last Updated: December 29, 2006 16:38 EST