ARLINGTON, Va. and STAMFORD, Conn.—The merger of Watson Wyatt Worldwide and Towers Perrin will dramatically alter the benefits consulting landscape, with the combined company displacing rivals to become the world's largest benefit consultant.

The companies' respective boards approved the merger last week of the combined entity to be called Towers Watson & Co.

Watson Wyatt Chief Executive Officer John Haley will serve as CEO of the merged company and Towers Perrin CEO Mark Mactas will be its president. The headquarters of the merged firm hasn't been decided, though it likely will be in the Northeast, top executives of the two firms said.

The transaction—valued at $3.5 billion and by far the largest in employee benefits consulting industry history—will bring together Arlington, Va.-based Watson Wyatt and Stamford, Conn.-based Towers Perrin, each of which reported $1.7 billion in 2008 revenues.

Looking at just benefit consulting revenues, Watson Wyatt, responding to an earlier Business Insurance survey, generated just over $1.5 billion in benefit consulting revenues in 2008 and Towers Perrin produced about $900 million for a combined total of about $2.4 billion. That sum easily eclipses industry leader Mercer L.L.C., which generated $1.9 billion in 2008 benefit consulting revenues.

Watson Wyatt and Towers Perrin said the transaction is a merger of equals, bringing a greater depth of talent for clients, while consultants at the merged company will have greater access to resources and a broader network of colleagues.

“The sum will be greater than its parts. Strategically, it will be a great fit,” Mr. Haley said in a conference call last week.

“Overall, we will offer a stronger set of services,” Mr. Mactas said in an interview.

While the two firms are roughly equal in overall revenues and in the size of their workforces—Watson Wyatt has 7,700 employees compared with Towers Perrin's 6,300 employees—the two consultants have several key differences.

Outside experts note that Watson Wyatt has a larger retirement plan consulting plan practice, while Towers Perrin has a considerably bigger health care consulting practice.

In addition, Watson Wyatt has a bigger geographic footprint and is much larger in certain key markets, such as the United Kingdom, while Towers Perrin has a reinsurance brokerage unit and offers risk management consulting services, which Watson Wyatt does not.

“They both bring strengths to the merger,” said Shlomo Rosenbaum, a vp and analyst in the Baltimore office of investment broker Stifel Nicolaus & Co. Inc.

Combined, the merged firms will offer a “broader arsenal” of services, Mr. Rosenbaum said.

Competitors, though, say they are up to the challenge posed by the merged company.

“Mercer has always thrived in a competitive environment, and we believe that clients will continue to value the power of the Mercer global brand across our consulting, outsourcing and investments businesses. We are confident that our strengths are recognized in the marketplace and that Mercer will compete successfully with the merged Towers Watson when their transaction is complete,” New York-based Mercer said in a statement.

While the merged firm will be a “formidable competitor,” said Donn Bleau, managing director-employee benefits and health care with executive recruiter Solomon-Page Group L.L.C. in San Diego, it still will have some gaps in the benefit-related services it provides compared with Mercer and Hewitt Associates Inc.

Neither Watson Wyatt nor Towers Perrin is in the benefit outsourcing market. Watson Wyatt exited that market in the late 1990s when it pulled out of a joint venture with State Street Global Advisors, while Towers Perrin recently sold to Hewlett-Packard Co. a minority interest it held in an outsourcing venture it formed in 2005 with EDS Corp. Hewlett-Packard purchased EDS last year.

For employers, the merger has a plus and a minus, said Joe Martingale, an independent consultant in New York who first worked for Towers Perrin as a health care consultant and later moved to Watson Wyatt.

On the positive side, “Employers will have access to a consultant that is deeper in resources” compared with each firm on its own, he said. “That can work to an employer's advantage.”

On the other hand, the merger means there will be one fewer big consultants from which employers can choose, perhaps giving employers less leverage in negotiating fees.

In sum, “it is a trade-off,” Mr. Martingale said.

The merger, though, should not pose any antitrust issues, said Evan Stewart, a managing partner with the law firm Zuckerman Spaeder L.L.C. in New York. That is because, among other reasons, even after the merger there will be plenty of competition in the benefit consulting industry, with no barriers to prevent new firms from starting up, he said.

A shareholder vote is expected in the fourth quarter, with a closing date soon after.