Towers Perrin, Watson Wyatt to Merge in $3.5B Deal

Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide Inc. have entered into a definitive agreement under which Towers Perrin and Watson Wyatt will combine in a merger of equals to form a new, publicly listed company called Towers Watson & Co.

Based on the closing price of Watson Wyatt common stock on June 26, 2009, the implied equity value of the transaction is approximately $3.5 billion.

Watson Wyatt CEO John Haley will serve the combined company as CEO; Towers Perrin CEO Mark Mactas will serve as president.

“The combination of Towers Perrin and Watson Wyatt into Towers Watson will create one of the world’s leading professional services firms, well positioned for sustained growth and profitability across all geographies and business segments,” said Haley. “The combination will further strengthen our core service lines while offering our clients an enhanced portfolio of proven offerings across a range of financial, risk and people management areas.”

Mark Mactas, CEO of Towers Perrin, said, “The fit between our firms is excellent, starting with a deep commitment to client service and shared values of integrity, professionalism and respect. Our service lines and geographic strengths are also highly complementary, which creates great opportunities for growth.”

Towers Watson, which is expected to have annual revenues in excess of $3 billion, anticipates approximately $80 million in pretax annual synergies. While significant savings are expected during the first two years following completion of the transaction, it is anticipated that full realization of synergies will take three years and cost approximately $80 million. Towers Watson will also have significant non-cash expenses during the first two years following completion of the transaction. The transaction is expected to be accretive to diluted earnings per share within three years following the consummation of the transaction.

Towers Watson will be stronger than the sum of its parts, the executives say, positioned for industry leadership long into the future and a more effective competitor that can provide additional services to existing and prospective clients.

The combined firm will operate within four geographic regions: North America, EMEA (Europe, Middle East and Africa), Asia-Pacific, and Latin America, and will focus on three segments: Benefits, Talent and Rewards, and Risk and Financial Services.

Under the terms of the agreement, Watson Wyatt shareholders will be entitled to receive 50 percent of the combined company’s shares on a fully diluted basis. Towers Watson shares issued to Watson Wyatt shareholders in the merger will be freely tradable.

Towers Perrin shareholders, who are all active employees of Towers Perrin, plus a group of Towers Perrin employees to be designated to receive certain equity incentive awards, will be entitled to receive 50 percent of the combined company’s shares on a fully diluted basis. Towers Watson shares issued to Towers Perrin shareholders will be restricted shares that become freely tradable over a period of one to four years.

The transaction is subject to approval by each company’s shareholders and the satisfaction of customary closing conditions and regulatory review and approvals, including competition reviews in the U.S. and other countries. Subject to satisfaction of these conditions, the companies anticipate a shareholder vote in the fourth quarter of 2009 and a closing date as soon as possible thereafter.

Goldman, Sachs & Co. is acting as financial advisor and Milbank, Tweed, Hadley & McCloy LLP is acting as legal advisor to Towers Perrin. Banc of America Merrill Lynch Securities is acting as financial advisor and Gibson, Dunn & Crutcher LLP is acting as legal advisor to Watson Wyatt.

Sources: Towers Perrin,
www.towersperrin.com
Watson Wyatt,
www.watsonwyatt.com