Business Context and Reporting Period
This Form 8-K, filed on November 25, 2015, by Willis Group Holdings Public Limited Company (Willis), provides supplemental disclosures regarding the proposed merger with Towers Watson & Co. (Towers Watson). The filing details an amendment to the Merger Agreement executed on November 19, 2015, following concerns that the original terms might not secure sufficient shareholder approval. The document updates the joint proxy statement/prospectus filed on Form S-4.
Key Financial Metrics and Transaction Terms
- Special Dividend Increase: Towers Watson agreed to increase its pre-merger special cash dividend from $4.87 per share to $10.00 per share.
- Exchange Ratio: The exchange ratio remains 2.6490 Willis ordinary shares for each share of Towers Watson common stock.
- Termination Fees:
- Willis's obligation to reimburse Towers Watson's fees (up to $45 million) if Willis shareholders fail to approve the merger was eliminated.
- Towers Watson is now required to pay Willis $60 million in cash for out-of-pocket fees and expenses if the merger is terminated due to a failure of Towers Watson stockholders to adopt the agreement, a failure of Willis shareholders to approve the share issuance, or a breach by Towers Watson.
- Financial Advisor Fees:
- Willis paid Perella Weinberg $3 million (June 2015) and $1.5 million (November 2015), with an additional $23.5 million contingent on closing.
- Towers Watson agreed to pay BofA Merrill Lynch an aggregate fee of $25 million, with $23.5 million contingent on consummation.
- Net Debt (as of Sept 30, 2015):
- Willis: $2.723 billion.
- Towers Watson: Negative $346 million (corrected from an initial figure of negative $371 million).
Material Changes and Meeting Updates
Due to preliminary voting data suggesting insufficient support for the original terms, both companies adjourned their shareholder meetings. The meetings were reconvened for December 11, 2015.
- Willis EGM: Reconvened at 8:30 a.m. Eastern Time at The Conrad New York Hotel. Voting extended to December 10, 2015.
- Towers Watson Special Meeting: Reconvened at 8:00 a.m. local time at The Westin Colonnade, Coral Gables Hotel. Voting extended to December 10, 2015.
- Regulatory Approvals: The companies received clearance from the Russian Federal Antimonopoly Service (Nov 2, 2015) and the European Commission (Nov 6, 2015).
Guidance, Outlook, and Fairness Opinions
Both financial advisors issued updated fairness opinions confirming the financial fairness of the amended transaction terms.
- Perella Weinberg (Willis Advisor): On November 18, 2015, opined that the Exchange Ratio was fair to Willis. A subsequent correction regarding Towers Watson's net debt on November 24, 2015, did not alter this opinion.
- BofA Merrill Lynch (Towers Watson Advisor): On November 19, 2015, opined that the Exchange Ratio (after giving effect to the $10.00 dividend) was fair to Towers Watson stockholders.
- Forward-Looking Financial Information:
- Willis Forecasts (2015E-2018E): Projected Total Revenues ranging from $3,837 million to $5,078 million. Underlying EBITDA projected to grow from $890 million (2015E) to $1,309 million (2018E).
- Towers Watson Projections (2015A-2018E): Projected Revenue ranging from $3,645 million to $4,466 million. EBITDA projected to grow from $768 million (2015A) to $939 million (2018E).
- Estimated Synergies: Jointly projected cost synergies of $100 million to $125 million and revenue synergies of $375 million to $675 million.
Investor Verification Checklist
- Verify the outcome of the reconvened shareholder meetings scheduled for December 11, 2015, for both Willis and Towers Watson.
- Confirm the final regulatory approvals required for the merger, noting that Russian and EU clearances have already been obtained.
- Review the full text of the fairness opinions (Exhibits 99.1 and 99.3) to understand the specific assumptions and limitations regarding the $10.00 special dividend and the exchange ratio.
- Monitor the status of the litigation mentioned in the filing, specifically the consolidated action where plaintiffs withdrew motions for expedited proceedings and preliminary injunctions in October 2015.
- Assess the impact of the $60 million termination fee obligation on Towers Watson's liquidity should the deal fail to close.