Towers Watson sweetens deal for shareholders holding out on Willis merger

Willis and Towers Watson have agreed to sweeten the terms of their proposed merger after Towers Watson shareholders rejected the original deal last month.

Towers Watson increased its special one-time cash dividend to $10 a share from the original share price of $4.87, after it failed to attract sufficient shareholder support. One proxy advisor group, however, is calling for an additional $3 per share citing similar recent deals in the sector.

Both firms were due to vote on the amended deal before 11 December.

Willis chief executive Dominic Casserley said: “In order to enable Towers Watson shareholder support, we are therefore agreeing to allow Towers Watson to increase the pre-close cash dividend.

“This is not a decision that we take lightly. However, for an increment of $179m, Willis shareholders have the opportunity to receive 50.1% of an estimated $4.7 billion of additional value that the deal is expected to generate.”

The companies hoped the new terms would persuade dubious Towers Watson shareholders.

According to reports, only 40% voted for the merger on 18 November after proxy firms advised to vote against it.

The boards of Willis and Towers Watson were keen for shareholders to vote for an $18bn merger, but the deal was beset by calls from proxy firms to reject it, forcing Towers Watson to publicly defend the proposal.

Before the initial vote of 18 November, proxy firms Institutional Shareholder Services (ISS) and Glass, Lewis & Co said that although certain aspects of the deal were beneficial, Towers Watson shareholders were being offered too low a price considering the firm’s strong financial results.

Under the original terms, Towers Watson shareholders would receive about $118 a share plus a dividend of $4.87 a share. According to the Wall Street Journal, that deal valued Towers Watson at a 9% discount to where its shares traded on June 29, the day before the merger was announced.

At the time, Willis chief executive Dominic Casserley (pictured) responded: “Naturally we are pleased that ISS recognises the ‘strategic merits and long-term benefits of the merger’, and with their recommendation that Willis shareholders vote for the transaction.

“However, we are disappointed with their conclusion that Towers Watson shareholders should not support the merger. We believe that this perspective neglects the estimated $4.7 billion in incremental value for shareholders that we expect through clearly-identified cost, tax and revenue synergies.

“We remain convinced that the merger is in the best interests of both sets of shareholders and represents value creation that neither company could realise on its own.”

Narrow view

Towers Watson board sent a letter to its shareholders, which rebuffed calls to vote down the merger with the world’s third-largest broker.

The board said: “We respectfully disagree with the conclusion reached by ISS and Glass Lewis. While clearly acknowledging the sound strategic rationale and synergy potential of the transaction, they focus on short-term trading, take a narrow view of relative value contribution and unduly discount the significant long-term value creation potential of the proposed merger with Willis.”

The letter also mentioned the $4.7bn in incremental value for Towers Watson shareholders if the proposed deal goes through.

It added: “In addition, the combination is expected to result in projected cash net income accretion to Towers Watson shareholders of over 25% for calendar year 2016, increasing to 45% for calendar year 2018.”