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Combined Willis-Towers Watson positioned to take on larger broker rivals

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When Towers Watson & Co. and Willis Group Holdings P.L.C. complete their projected merger in early 2016 to become Willis Towers Watson, the new company will be well-positioned to compete with its larger rivals.

“The newly combined entity will be larger and have greater scale and more diversification, with a profile more akin to a Marsh or Aon,” said James Auden, managing director of insurance at Fitch Ratings Inc. in Chicago.

On Friday, shareholders for both companies voted to approve the $18 billion merger, overcoming questions about valuation and even an unfavorable proxy report from proxy advisory firm Glass Lewis & Co. L.L.C.

At Willis' extraordinary general meeting of shareholders, shareholders approved a proposal that Willis issue new shares to Towers Watson shareholders as required to complete the merger, as well as proposals to change the name of the combined company to Willis Towers Watson upon completion of the merger and to execute a reverse stock split in which every 2.6490 Willis shares would be converted to one share, allowing Towers Watson shareholders to receive one post-split Willis share for each Towers Watson share.

At Towers Watson's special meeting of stockholders, shareholders voted in favor of a proposal to approve the merger agreement with Willis.

Willis Towers Watson will have pro forma revenue of $5.56 billion and net income of $572.0 million for the nine-month period that ended in September of this year and pro forma revenue for 2014 of $7.30 billion with net income of $398.0 million, according to a recent U.S. Securities and Exchange Commission filing from Towers Watson.

While this is still less than half the $12 billion-plus revenues of the world's two largest brokers — Marsh L.L.C. and Aon P.L.C. — it puts a greater cushion between the newly combined entity and the world's fourth-largest broker, Arthur J. Gallagher & Co., with $3.53 billion in 2014 brokerage revenues according to Business Insurance's latest ranking of the world's largest brokers.

“We are confident that combining Towers Watson and Willis will accelerate both companies' long-term strategies and create substantial incremental value for shareholders,” Towers Watson Chairman and CEO John Haley said a statement announcing the votes Friday.

Friday's votes overcame some shareholder opposition questioning valuation. On Nov. 19, Towers Watson said it would raise the one-time cash dividend to $10 per share from the original $4.87 per share, addressing the questions of valuation.