Business Context and Reporting Period
Company: Willis Group Holdings Limited (Willis Towers Watson PLC)
Filing Type: Form 8-K (Current Report)
Date of Report: November 18, 2009
Event: Entry into a Material Definitive Agreement regarding the reorganization and partial divestiture of Gras Savoye & Cie ("Gras Savoye").
Key Financial Metrics and Transaction Structure
This filing details a leveraged transaction to reorganize the share capital of Gras Savoye. Willis Europe BV (a wholly-owned subsidiary of the Company) will retain a 31.8% indirect interest in Gras Savoye, while Astorg Partners (private equity) will obtain a 31.8% interest. The Lucas and Gras family shareholders will collectively retain a 31.8% interest.
- Willis Contribution: Willis Europe contributes Gras Savoye shares valued at approximately €90.6 million to the new TopCo entity.
- Willis Consideration: In exchange, Willis receives TopCo preferred voting shares (€36.2 million) and convertible bonds (€54.4 million).
- Willis Loan: Willis Europe provides a €32.5 million loan to TopCo (6% interest, potentially convertible).
- Cash Proceeds: In the third step of the transaction, BidCo will purchase remaining shares from Willis Europe for approximately €107.3 million in cash.
- Third-Party Financing: The transaction expects a senior debt loan of approximately €145 million to BidCo, secured by pledges of shares and convertible bonds. This debt is expected to be non-recourse to the Company.
- Debt Covenants: The Company amended its Credit Agreement to permit the disposition of Gras Savoye equity, provided 100% of net cash proceeds are used to prepay loans under the Credit Agreement.
Material Changes and Governance
The transaction results in a significant change in the ownership structure of Gras Savoye, moving from a majority-owned subsidiary to a joint venture structure with equal voting rights (33.3% each) shared by Astorg, Willis Europe, and the Family Shareholders.
- Management: Patrick Lucas will serve as President. The Supervisory Board will have 9 members, with Astorg, Willis, and Family Shareholders each appointing 3 directors.
- Lock-up Period: Shareholders are prohibited from transferring TopCo securities until 2015, subject to unanimous consent exceptions.
- Call Option: Willis Europe holds a call option exercisable in 2015 to acquire all other TopCo shares. The valuation formula is based on a weighting of revenue and EBITDA averaged over 2013 and 2014.
- Non-Compete: The Company and affiliates are subject to non-compete and non-solicit clauses with Gras Savoye for two years after ceasing to own equity.
Guidance, Outlook, and Risks
Closing Timeline: The Company expects the transaction to close in the fourth quarter of 2009, subject to finalizing Third Party Financing and customary conditions.
Risks and Contingencies:
- Financing Risk: Closing is contingent upon securing the €145 million Third Party Financing.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially due to political, economic, climatic, currency, tax, regulatory, and competitive factors.
- Valuation Uncertainty: The future value of the retained interest and the call option depends on the 2013 and 2014 consolidated accounts of TopCo.
Investor Verification Checklist
- Verify the final closing date and confirmation that the €145 million Third Party Financing has been secured.
- Confirm the exact amount of net cash proceeds applied to prepay the Credit Agreement as required by the Fourth Amendment.
- Monitor the 2013 and 2014 financial performance of TopCo to assess the potential value of the 2015 call option.
- Review the Shareholders Agreement for specific veto rights granted to Astorg-appointed directors regarding key matters.
- Check for any updates on the non-recourse status of the Third Party Financing relative to Willis Europe's liability.