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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