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Shareholders giving Willis cold shoulder

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Whether a bigger one-time dividend is enough to convince Towers Watson & Co. shareholders to vote in favor of merging with Willis Group Holdings P.L.C. remains to be seen, but some already are saying it's not enough.

Following repeated investor calls to increase the price Willis would pay to purchase the consultant, Towers Watson said last week that a one-time dividend to be paid to its shareholders would be increased to $10 per share from the original $4.87. The dividend is to be paid to Towers Watson shareholders of record three days before the close of the deal, which initially was announced in June.

Following published reports that Towers Watson lacked enough votes to approve the deal, originally valued at $18 billion, Towers Watson also delayed a vote on the merger that was to be held last week. Now it will be held Dec. 11, Towers Watson said.

“Under the revised terms, Towers Watson stockholders will realize increased near-term value while maintaining the full long-term benefits of the transaction, which is expected to create approximately $4.7 billion in total incremental value by bringing together these two highly complementary businesses,” Towers Watson Chairman and CEO John Haley said in a statement.

However, Chicago-based Towers Watson shareholder Driehaus Capital Management L.L.C., which was among the most vocal critics of the deal, said the one-time dividend should be increased to $17.72.

“The increased consideration offered to Towers Watson shareholders today is an acknowledgement that the deal's initial terms were inadequate,” Driehaus said Thursday in an open letter to Towers Watson shareholders. “This is a step in the right direction, but the offer is still too low and closes neither the valuation gap nor the merger-of-equals price gap. A true merger of equals would dictate a special dividend of $17.72. In the interests of all involved, we urge Willis Group Holdings to put its best and final offer on the table.”

The agreement as it currently stands calls for Towers Watson to pay Willis a $60 million breakup fee to defray Willis' costs should Towers Watson shareholders reject the deal. However, an amendment to the agreement eliminates Willis' obligation to reimburse Towers Watson up to $45 million in expenses should Willis shareholders reject the deal.

Market observers said the move making the deal more favorable to Towers Watson shareholders wa not surprising.

“I'm not surprised that they needed to revise the terms,” said Mark Dwelle, an analyst at RBC Capital Markets L.L.C. in Richmond, Virginia. “What is less clear is whether this will be sufficient.”

“Regarding the value, we know Willis' shareholders should receive a premium associated with its Irish-domiciled tax status (and) Tower's shareholders, a premium for their deep strength in the benefits space; and both parties should share in synergistic value created in the combined business,” said John Wicher, principal of John Wicher & Associates Inc. in San Francisco, in an email.

“The issue is that 'fair' is a relative term depending on where one is sitting,” he said. “Will a one-time cash dividend of $10 a share, compared with $4.87 under the previous offer, be judged as 'fair'? We'll see.”

John L. Ward, CEO of Cincinnatus Partners L.L.C. in Loveland, Ohio, was a bit more optimistic that the deal will be approved ultimately.

“When this deal was announced, it was well-documented that it appeared to be more favorable for Willis shareholders than Towers Watson” shareholders, he said.

“The revised terms in effect shift $350 million in value from Willis to Tower Watson,” Mr. Ward said. “I believe with the revised terms, the deal will go through.”