The deal is presented as a merger of equals. By year end, the benefits management deal is expected to close. Antitrust is not an issue for the transaction.
As a merger of equals, the way the trade is set up is often telling. In this case, risk arbitrageurs are setting up the trade as if Towers is the buyer and Willis the target. That means arbs are looking at Willis share as a 0.3775 Towers share in cash because the merger provides Tower shareholders with a special dividend. The spread looking at the deal from this angle Tuesday was about $1.25, or 2.6%.
It looks like the companies were not well shopped, a risk arbitrageur said. There is a low premium because it is a merger of equals, but both companies' shareholders have to approve the transaction. The market is looking at the possibility that Willis shareholders might seek a better cut of the combined company, the arb said.
The reinsurance deal is not expected to pose any regulatory risk, but the deal process could still take until the end of 2015. Towers shareholders receive a cash dividend of $4.87 in the deal, so setting the spread up with Tower as the buyer means being short about $1.85 of that payout.