Strife Erupts on Proposed Towers Watson Merger

The $18 billion union is far from a done deal.

Several proxy vote research firms, an activist hedge fund, and Towers Watson itself have faced off in an fractious opinion battle over the consulting giant’s proposed merger with insurance brokerage Willis. 

In one week, shareholders are set to vote on the fate of ‘Willis Towers Watson’: A union that would create the third-largest advisory, brokerage, and financial product firm worldwide. Expert guidance on the $18 billion deal has become more conflicted with each passing day. 

“It is a shame that Institutional Shareholder Services could cause the dissolution of a deal that even it doesn’t dispute should be highly accretive to both sets of stockholders.”

Willis and Tower Watson’s agreed-on merger-of-equals structure would sell Towers at its closing-date stock price plus a $4.87 dividend per share, not a premium as is typical with acquisitions. 

The two largest shareholder-proxy advisors—Institutional Shareholder Services (ISS) and Glass, Lewis & Co.—ignited debate last week by recommending voters reject the offer. “Although the potential long-term benefits of the deal appear compelling, it is not at all clear that realizing those opportunities necessitates taking a steep discount,” ISS stated in its report. The firm critiqued Towers for negotiating exclusively with Willis as opposed to putting itself in play for other bids. 

Towers shot back the next day. The proxy advisors, it argued, “focus on short-term trading, take a narrow view of relative value contribution, and unduly discount the significant long-term value creation potential of the proposed merger with Willis.” 

“We are pleased ISS recommended that shareholders vote against the value-destructive Willis transaction.” 

Asset manager Driehaus Capital jumped in the fray to back ISS, calling the potential transaction “value destructive.” 

Activist hedge fund ValueAct took the opposite position, accusing ISS of ‘bumpitrage’, or issuing advice in pursuit of a short-term stock bump rather than long-term value. 

“It is a shame that ISS could cause the dissolution of a deal that even it doesn’t dispute should be highly accretive to both sets of stockholders over a multi-year time horizon,” ValueAct—a Towers shareholder—wrote yesterday in an open letter backing the deal. “The suggestion that the Towers Watson board did not do its job in exploring a quick-hit cash premium rings hollow.” 

And yesterday, a full analysis from research firm Proxy Mosaic concluded that Towers investors stand to benefit from a completed union. 

“The merger will create a well-balanced consulting and insurance brokerage company almost roughly split geographically between North America and international business,” the report said. 

Proxy Mosaic acknowledged that the deal may be a “difficult pill for shareholders to swallow” given the lack of market-price premium. Nevertheless, “the long-term value to be realized in this combination is compelling, and that the current Towers Watson management team has the kind of track record of success with integration to warrant a large degree of trust.” 

Towers’ stockholders are scheduled to vote at a special meeting in Miami Beach November 18 at 8am ET. 

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