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Towers Watson shareholder says Willis merger 'destroys' value

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Driehaus Capital Management L.L.C., a leading Towers Watson & Co. shareholder, said Wednesday in a filing with the U.S. Securities and Exchange Commission that the merger agreement between Willis Group Holdings P.L.C. and Towers “destroys substantial shareholder value.”

Driehaus, which in its filing said it owns 1,000,113 shares of Towers Watson, is urging shareholders to vote against the proposal.

The investment firm says the merger is “highly value-destructive” and takes issue with the fact that Towers did not negotiate a “go shop” period in which to seek a superior offer from the marketplace.

Analysts suggested that the merger has potential to create value.

“I think that Towers Watson management has an appropriate, in my view, perspective on the value that will emerge at Willis as it executes on its Operational Improvement Program,” said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.

“The market clearly didn't see this in the immediate aftermath of the announcement, but I think it reflects good long-term thinking,” added Mr. Shields.

A Willis spokeswoman referred inquiries to Towers Watson as Driehaus is a Towers shareholder.

“We remain confident in the significant value creation potential of the Willis/Towers Watson merger, which is expected to deliver approximately $4.7 billion in incremental value to shareholders. Towers Watson continues to have positive conversations with its shareholders, who have benefitted from the Company's proven track record of delivering value through organic growth and successfully executing value-creating transactions. We strongly believe the Willis/Towers Watson merger is in the best interest of all shareholders and remain committed to completing the transaction,” a Towers Watson spokesman said in an email.

Driehaus also says that the Wills offer, at 9% below market value, compares unfavorably with the July 2010 Aon Hewitt deal. On July 12, 2010, Chicago-based insurance broker, Aon Corp., announced that it had agreed to buy Hewitt Associates for $4.9 billion in cash and stock — which commanded a change of control premium of 42.1%, according to the Driehaus filing.

The investment firm has previously reached out to Towers shareholders recommending they reject the Willis deal.

When the deal was first announced June 30, Standard & Poor's Financial Services L.L.C., placed Willis under review with negative implications extending its CreditWatch with developing implications on Willis Group Holdings. In a Sept. 30 note, S&P said it was extending for 90 days the review with developing implications

“We continue to review the company following its announcement on June 30, 2015, that it entered into a definitive agreement for an all-stock merger of equals with Towers Watson in a transaction valued at approximately $18 billion,” S&P said in its Sept. 30 note.

“We will continue to monitor developments relating to this transaction and expect to update or resolve the CreditWatch listing within the next 90 days following discussions with management on the combined group's prospective corporate strategy, competitive position, earnings and cash flow metrics, and financial risk profile,” said S&P.