By Juliet Samuel
The chief executive of Towers Watson & Co. says a lower tax
bill is a benefit rather than the main driver of the Virginia-based
benefits adviser's planned merger with European insurance broker
Willis Group.
The two companies said Tuesday that they plan to merge and
create an $18 billion company.
One attraction of the deal for the companies is that U.S.-based
Towers Watson can benefit from Willis's lower tax rate, courtesy of
its Irish domicile. Towers Watson's rate has been around 32% in
recent years, the company said, while combined the rate is expected
to be about 25%, the company said.
The move follows a series of similar deals struck in the last
year, including Valeant Pharmaceuticals International Inc. buying
Salix Pharmaceuticals and Actavis PLC buying Allergan Inc., in
which foreign companies signed deals for American targets in
combinations that enabled the buyer to leverage its more favorable
corporate tax regime.
John Haley, chief executive of Towers Watson, said that a lower
tax rate was a benefit of the deal but said the "strategic nature
of the deal was what drove the deal".
On a conference call with chief executives to discuss the deal,
some analysts suggested that Towers Watson investors are getting a
raw deal, given that their company's stock has risen this year,
whereas Willis' shares have been flat since mid-February. Towers
Watson's share price was down 4.2% to $132.19, while Willis' gained
4.2% to $47.31 in afternoon trading.
Mr. Haley said that the two companies' share prices should be
compared over the last few years rather than over recent
months.
Aside from any tax advantages, the merger will allow Towers
Watson to grow more quickly and profitably, said Mr. Haley, who
will lead the combined group. James McCann, the chairman of Willis,
will become chairman of the merged company, while Dominic
Casserley, chief executive of Willis, will become deputy CEO.
One of the main strategic gains touted by Mr. Haley and Mr.
Casserley was the expansion of Towers Watson's One Exchange
Platform. The platform enables companies to give their employees a
choice of which health plan they want to enroll in based on the
region they are in, which results in cutting health-insurance costs
by an average of $1,400 per employee compared with having one
uniform plan for all employees, according to Mr. Haley.
Willis already has a wide range of midsize American companies as
clients and had been buying Towers Watson's health-insurance system
to sell it on to its customers.
Mr. Haley and Mr. Casserley said that the deal emerged from
conversations they were having about health-plan services, in which
they concluded that combining their two companies would accelerate
sales growth.
The deal will also save a combined $100 million to $125 million
in annual costs, excluding any tax benefits, the companies said. It
will increase revenues by "a very exciting number," according to
Mr. Casserley, but he refused to be more specific. Analysts were
unimpressed by the cost savings, which Mr. Haley admitted are
"probably a little bit low," but he said he would rather exceed
expectations than miss them.
The merged group will create a professional services giant with
39,000 employees spread across 120 countries. Its total revenues
will reach $8.2 billion, generating earnings before income, taxes,
depreciation and amortization of $1.7 billion a year, according to
the companies.
The terms agreed between the two companies' boards would see
each Towers Watson share exchanged for 2.6 Willis shares, on top of
which Towers shareholders will get a $4.87 dividend. Shareholders
in both companies will each own half of the merged group. The deal
is expected to close by the end of the year.
Write to Juliet Samuel at juliet.samuel@wsj.com
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