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High expectations for Willis, Towers Watson merger


Market analysts gave a general thumbs up to the proposed merger of Willis Group Holdings P.L.C. and Towers Watson & Co. announced Tuesday.

“The transaction appears to be almost a true merger of equals,” said J. Paul Newsome, managing director at Sandler O'Neill & Partners L.P. in Chicago in a research note.



“From our perspective, the strategic justification appears to be about the benefits of being a global insurance broker,” he wrote. “Both companies were already among the largest brokers in the world but not as global” as Aon P.L.C. and Marsh L.L.C.

“At first blush, the combined entity appears to offer impressive services for their corporate clients, which we expect to lead to stronger client retention rates and potentially higher growth rates,” said Cliff Gallant, an analyst with Nomura Securities International Inc. in San Francisco in a research note.

Mr. Gallant noted that “in professional service organizations, the employees are the main asset. Thus, we expect competitors will attempt to hire away key employees and have some degree of success. However, the relatively little overlap between the two organizations may limit departures.”

Mr. Newsome said in an email the new combination could create new competition for Arthur J. Gallagher & Co. and other major brokers.

“If Willis emerges as a better run company, (then) maybe the main impact for Gallagher and others is that there is just one more good competitor,” said Mr. Newsome in an email. “I am constantly reminding investors that the insurance broking business is a really big global market, and that just because there are two, three or four really big global insurance brokers doesn't mean that there isn't plenty of room for a fifth or sixth global giant. This is particularly true if you allow the insurance brokers smaller than Aon and Marsh to focus on the middle sized corporations.”

“The deal provides several well-respected consulting business segments, including a premier health insurance exchange, employee benefits brokerage, risk and financial services consulting, and talent and rewards consulting,” that largely mirror Aon's and Marsh's corporate structure,” said Meyer Shields, managing director at Keefe Bruyette & Woods Inc. in Baltimore in a research note. The merger also “implies significant cross-sell opportunities,” by giving Willis access to Towers Watson's domestic large corporate clients and Towers Watson access to Willis' middle-market clients across the globe, said Mr. Shields.

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