LONDON—Reinsurance and risk advisory firm Willis Group Holdings and professional services group Towers Watson on Tuesday said they had agreed to an all-stock merger that values the combined company at $18 billion.

Under the deal, which has been approved by both boards, Towers Watson shareholders will get 2.6490 Willis shares for each share held as well as a one-time cash dividend of $4.87 a share.

Willis Group shareholders will own 50.1% of the combined group and Towers Watson shareholders will own the rest.

The combined company will have 39,000 employees in more than 120 countries and revenue of about $8.2 billion.

Write to Ian Walker at ian.walker@wsj.com

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