M&A

Towers Watson, Willis Sweeten Merger Terms

To get Towers Watson shareholders to approve the deal, the companies raise the special cash dividend to $10 a share.
Matthew HellerNovember 20, 2015

Towers Watson and suitor Willis Group Holdings are seeking to give new life to their proposed $18 billion merger by sweetening the terms of the deal by roughly 4%.

A day after Towers Watson shareholders rejected the original deal, the financial consulting firm said Thursday it would increase a special cash dividend payable to its shareholders to $10 a share from $4.87. The original deal valued Towers Watson at $125 a share, while the revised proposal values the company at $130.26 a share, adding about $350 million to the deal.

On news of the sweetened terms, Towers Watson stock closed Thursday up 1.7%, at $131.40. Insurance broker Willis Group closed up 1.3% at $45.26.

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The companies have said the merger would generate long-term growth, in large part from cross-selling Towers Watson’s consulting, actuarial, and other products to Willis’s insurance clients, and vice versa.

But since the merger was announced in June, Towers Watson investors have said it undervalued the company. The original price represented a 9% discount to where Towers Watson shares had traded the day before the announcement.

As The Wall Street Journal reports, hedge fund Driehaus Capital Management wrote public letters urging investors to vote against the deal unless the terms were renegotiated and proxy advisory firm Institutional Shareholder Services also recommended a “no” vote.

In an email on Thursday, Driehuas said: “The increased consideration offered to Towers Watson shareholders is an acknowledgement that the deal’s initial terms were inadequate. This is a step in the right direction, but the offer is still too low and closes neither the valuation gap nor the merger-of-equals price gap.”

Driehaus said a true merger of equals would require a special dividend of $17.72.

Shareholders of both Towers Watson and Willis have until Dec. 16 to vote on the new proposal. Under the new terms, Towers Watson would owe Willis $60 million if either set of shareholders rejects the transaction.

Hedge fund ValueAct Capital Management, which owns 10% of Willis, supports the renegotiated terms, Willis said.

“Under the revised terms, Towers Watson stockholders will realize increased near-term value while maintaining the full long-term benefits of the transaction, which is expected to create approximately $4.7 billion in total incremental value by bringing together these two highly complementary businesses,” Towers Watson CEO John Haley said in a news release.

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