Willis to Merge With Towers Watson in $8.7 Billion Deal

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Willis Group Holdings CEO Dominic Casserley
Willis Group Holdings Chief Executive Officer Dominic Casserley. Source: Willis Group Holdings Plc via Bloomberg

Willis Group Holdings Plc, the third-largest insurance broker, agreed to merge with Towers Watson & Co. to add consulting operations and help take on larger U.S. rivals.

Shareholders of the broker will own 50.1 percent of the combined company, which will be domiciled in Ireland, lowering taxes for U.S.-based Towers Watson. Investors of the consulting company will get 2.649 Willis shares and a one-time cash dividend of $4.87 for each share they own, the companies said Tuesday. Based on the broker’s closing price Monday, the deal values Towers Watson at about $8.7 billion.

Marsh & McLennan Cos. and Aon Plc, the two largest brokers, also offer consulting services to tighten relationships with commercial clients who are seeking to manage employee benefits as well as buy insurance. Aon expanded in 2010 with the purchase of Hewitt LLC.

“The combined company will look and feel more like Aon or MMC,” Sean Dargan, an analyst at Macquarie Group Ltd., said in a note to investors. “Given past difficulties in such deals, we reiterate our neutral rating” on London-based Willis.

Willis has been pursuing deals to extend its geographic reach and add customers seeking coverage for specialized risks. The firm in April offered to buy the 70 percent of French broker Gras Savoye SAS that it didn’t already own, and in January agreed to purchase Miller Insurance Services.

Growth Opportunities

“This is all about accelerating the growth opportunities of the two companies,” Willis Chief Executive Officer Dominic Casserley said on a conference call. “We both felt we could succeed by ourselves, but when we saw the two of us together we saw the upside being significant.”

Upon completion, Willis Chairman James McCann will become chairman of the combined group and Towers Watson CEO John Haley, 65, becomes CEO. Casserley will be deputy CEO. The new board will consist of six directors nominated by Willis and six by Towers Watson including the two CEOS.

The deal values Towers Watson at about $125 a share, Sarah Dewitt, an analyst with JPMorgan Chase & Co., said on the call. That compares with Monday’s closing price of $137.98. The consulting firm slipped 8.8 percent $125.80 at 4 p.m. in New York trading, while Willis advanced 3.3 percent to $46.90. The combined company will have a market value of about $18 billion.

Tax Benefits

Haley said both firms had already been pushing toward becoming an advisory, brokerage and solutions company and the merger, first discussed over dinner between the two CEOs, accelerates that strategy and lowers the execution risk.

The combined company’s tax rate will probably be in the “mid-20 percent range” within two years, Casserley said on a conference call. That compares with Arlington, Virginia-based Towers Watson’s current rate of more than 30 percent, the consulting company said.

The deal is “driven by business purpose, not from a tax planning standpoint,” Haley said. “The tax benefits that are derived just happen to be a nice consequence of the transaction. We don’t see a lot of regulatory risk from the tax standpoint when we look at this deal.”

As CEO, Haley will oversee about 39,000 employees in more than 120 countries across the combined company, which had a pro forma revenue of about $8.2 billion last year. The deal will produce $100 million to $125 million in cost savings within three years, the companies said.

Willis was advised by Perella Weinberg Partners, Weil Gotshal & Manges and Matheson, according to the statement. Towers Watson worked with Bank of America Corp. and Gibson Dunn & Crutcher.

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