(Bloomberg) — Willis Group Holdings P.L.C. (NYSE:WSH), the third-largest insurance broker, agreed to merge with Towers Watson & Co. (NYSE:TW) to add consulting operations and help take on larger U.S. rivals.
Towers Watson has been a major player in the U.S. private health insurance and benefits exchange market.
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. (NYSE:MMC) and Aon P.L.C. (NYSE:AON), 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 S.A.S. that it didn’t already own, and in January agreed to purchase Miller Insurance Services.
“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.