LONDON—Willis Group Holdings Ltd. has signed a definitive agreement with a private equity fund to sell part of its stake in Gras Savoye & Cie. for $160 million, though the London-based brokerage will retain an option to buy outright its French partner.

Willis announced in June that it was seeking to sell some of its 48% stake—valued at $343 million—in Paris-based Gras Savoye, which it has steadily increased since its original investment in 1997. Under a put agreement, however, Willis could have been obligated to buy the remaining shares of the brokerage between now and 2011, if Gras Savoye’s shareholders had “put” their shares to Willis.

Willis announced that it had entered “an exclusive arrangement” with Paris-based private equity firm Astorg Partners last month.

Under terms of the transaction announced late Wednesday, Astorg Partners will acquire 31.8% of the outstanding shares of a new Gras Savoye holding company from Willis and Gras Savoye family shareholders. Willis and the family shareholders will roll over their remaining shares of Gras Savoye into the new holding company through a combination of equity, convertible debt and seller financing.

In a statement, Willis said it will roll over approximately $135 million in equity and convertible debt and lend approximately $48 million to the new holding company at a 6% annual rate. It expects to generate $160 million in tax-free net cash from the transaction, which it will use to pay down existing debt, it said.

On completion of the deal, which is expected by year-end, Astorg Partners, Willis and Gras Savoye family shareholders each will hold 31.8% stakes of the Gras Savoye holding company and have equal representation of 33.3% of the voting rights on its board. The remaining 4.5% stake will be held by a large pool of Gras Savoye managers. The existing put option between Willis and Gras Savoye will be canceled.

Willis said the agreement gives it the option to purchase 100% of the capital in Gras Savoye in 2015, should it choose to do so, with notification in 2014.