NEW YORK (The Deal) -- New York-listed Willis Group Holdings (WSH) has agreed to offer about $8.34 billion-worth of shares for Towers Watson (TW) in a deal which will fold reinsurance, insurance brokerage, risk advisory and other professional services into an entity with about $8.2 billion of annual revenue.
Willis, of London, said on Tuesday that it will offer 2.6490 of its shares for each share in Nasdaq-listed Towers Watson. Based on Monday's close, the offer is worth $120.2646 per Towers Watson share, or $125.1346 if including a $4.87 special dividend coming Towers Watson's shareholders' way as part of the deal. That's still well below the $137.98 Monday closing price of the Arlington, Va.-based target on Nasdaq. The companies put the implied equity value of the whole transaction at $18 billion.
The merger partners expect cost synergies of $100 million to $125 million within three years of closing and noted that the company would have had 2014 revenue of $8.2 billion if they'd already merged last year, and EBITDA of more than $1.7 billion. The combined entity, which will be incorporate in Ireland, will have 39,000 employees in more than 120 countries.
They said the transaction will help Willis expand in the U.S. corporate property and casualty market and in turn provide expansion opportunities outside the U.S. for Towers Watson.
"We see numerous opportunities to enhance our growth profile by offering integrated solutions that leverage Willis' global distribution network and superb risk advisory and re/insurance broking capabilities to deliver a more robust set of analytics and product solutions across a broader client base," said CEO-designate John Haley, who is now chairman and CEO of Towers Watson, in a statement.
The companies plan to follow up the initial stock swap with a reverse stock split, through which Willis shares will be converted into shares in Willis Towers Watson. The transaction will leave Willis shareholders with 50.1% of the combined company, and Towers Watson's stockholders with 49.9%.
ValueAct Capital, which holds a 10.3% stake in Willis, has said it will vote in favor of the deal, which requires clearance from both sets of shareholders.
If all goes to plan, the new entity will have a 12-strong board split equally between the merged companies. James McCann, Willis' non-executive chairman, will be chairman, while Willis CEO Dominic Casserley will be president and deputy CEO.
The companies expect the deal to close by year-end.
David Marcus contributed to this report.