(Bloomberg) — Willis Group Holdings PLC (NYSE:WSH), the third-largest insurance broker, agreed to better terms for Towers Watson & Co. (NYSE:TW) shareholders in a proposed merger after the consulting firm’s investors said that a June agreement was inadequate.
The one-time cash dividend will be $10 a share, compared with $4.87 under the previous offer, Towers Watson said in a statement Thursday. The latest agreement values the consulting firm at about $8.9 billion, based on Wednesday’s closing price for Willis.
The consulting firm had postponed a shareholder vote that was scheduled for Nov. 18 amid opposition from some proxy-advisory firms and investors to the deal, which was valued at about $8.7 billion when it was announced on June 30. Towers Watson shares fell 8.8 percent that day, and investor Driehaus Capital Management LLC later faulted the accord as a “takeunder.” A vote on the new terms will occur by Dec. 16, Arlington, Va.-based Towers Watson said.
“Towers Watson shareholders are upset, and I can totally understand that,” Darren Marcus, an analyst at MKM Partners, said in a phone interview before the terms were changed. “With that said, I think the deal, in a lot of ways, makes sense.”
Under terms of the June agreement, Towers Watson Chief Executive Officer John Haley would retain that post for the combined company, and Willis’s stockholders would hold about 50.1 percent. The companies said a merger would increase shareholder value by about $4.7 billion because of cost savings, opportunities for increased revenue and tax savings. London-based Willis enjoys lower rates than U.S. companies.
Not taken lightly
Willis CEO Dominic Casserley said that the increased dividend would allow Towers Watson shareholders to have another $357.4 million before his shareholders take their stake in the consulting firm. And he described that as an acceptable cost, given the benefits.
“This is not a decision that we take lightly,” he said in a separate statement.
Willis gained 1.3 percent to $45.26 at 4:01 p.m. in New York trading. Towers Watson climbed 1.7 percent to $131.40. That compares with $137.98 on the day before the initial deal was announced.
Willis’s willingness to allow a higher payout “is an acknowledgment that the deal’s initial terms were inadequate,” Driehaus said in a statement.“A true merger of equals would dictate a special dividend of $17.72.”
Willis is seeking Towers Watson to better compete with larger insurance brokers Marsh & McLennan Cos. (NYSE:MMC) and Aon PLC (NYSE:AON), which also have substantial consulting operations. Marcus said that Towers Watson’s push into employer-based health insurance exchanges could make it a good fit with Willis.
The broker agreed in June to pay investors 2.649 Willis shares and a one-time cash dividend of $4.87 for each Towers Watson share they own. Towers Watson said the terms were based partly on 60-day stock averages through the end of May and that its main focus was on the company’s long-range prospects.
“We think this revision will satisfy enough TW shareholders for ultimate approval,” Meyer Shields, an analyst with Keefe Bruyette & Woods, said in a note, using the companies’ ticker symbols. “We also expect WSH shareholders to approve the revised deal, given the very significant potential synergies.”