ISS says shareholders should reject Willis-Towers Watson merger as price is too low
Institutional Shareholder Services (ISS) and Glass, Lewis & Co, the two largest shareholder-proxy advisers, have said in a news release that they have recommended Towers Watson shareholders reject its $18bn planned merger with Willis Group Holdings as they believe the price is too low, thereby hindering the deal's chances of proceeding. The ISS also noted that the company had not contacted any other potential bidders but instead exclusively negotiated with Willis; the deal is set for 18th November. Whilst Willis has declined to comment, Towers Watson has said that it disagrees with the news release, as it does not think the "significant long-term value" created by the merger has been considered.

Towers Watson & Co. investors should reject a planned merger with insurance broker Willis Group Holdings Plc, proxy advisers Institutional Shareholder Services and Glass Lewis & Co. said.

The consulting firm’s holders should seek improved merger terms, or “the better option at this time is to remain a standalone company,” Glass Lewis said in its report. Shares of Towers Watson fell when the deal was announced in June.

Both companies’ investors are scheduled to vote on the deal Nov. 18. Willis agreed to merge with Towers Watson in an $8.7 billion transaction to add consulting operations, helping it compete against diversified insurance-broker rivals Aon Plc and Marsh & McLennan Cos. Willis investors would own 50.1 percent of the combined company, to be domiciled in Ireland and led by Towers Watson CEO John Haley. Towers Watson holders would get 2.649 Willis shares and a one-time cash dividend of $4.87 for each share they own.

“Although Towers shareholders might be willing to forgo a premium in exchange for the potential benefits of this transaction, the magnitude of the discount they are being asked to accept appears excessive,” ISS said in the report.

‘Revenue Synergies’

Towers Watson disagrees with the advisers because they focus on short-term trading and discount the “significant” long- term value creation potential of the merger, the company said on Friday. Willis said in a statement that the recommendation “neglects the estimated $4.7 billion in incremental value for shareholders that we expect through clearly identified cost, tax and revenue synergies.”

Towers Watson has slumped 6.4 percent since the deal was announced. The consulting firm gained about 1 percent to $129.21 in New York Thursday. London-based Willis advanced less than 1 percent to $45.28.

Towers Watson stakeholders including Driehaus Capital Management LLC, which owns more than 1 million shares, have said they’re planning to vote against the proposed deal.

“They came out with fantastic earnings that handily exceeded market expectations,” Matthew Schoenfeld, an assistant portfolio manager at Driehaus, said in a phone interview Friday. “It’s not in the best interest of shareholders to sell at a 9 percent discount to market value for a company that is exceeding expectations and that is doing quite well.”

‘Value Proposition’

In a separate report, Glass Lewis recommended that Willis holders vote for the merger, saying that the deal would help the business diversify.

“If the envisioned synergies are realized to the full extent expected, we believe the deal would indeed prove to be a favorable value proposition for Willis,” the proxy adviser said.

–With assistance from Colin Keatinge in Tokyo.

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Topics Mergers & Acquisitions