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A Massachusetts city pension fund filed a class action lawsuit last week against Willis Towers Watson P.L.C., its chief executive and others, charging that investors were misled into accepting the massive 2016 merger deal that created the insurance broking giant.
The case of Cambridge Retirement System vs. Willis Towers Watson & Co., Willis Group Holding plc, Towers Watson & Co., ValueAct Capital Management, John J. Haley, Dominic Casserley, and Jeffrey W. Ubben was filed on November 21 in the U.S. District Court for the Eastern District of Virginia and alleges the merger of Willis and Towers Watson violated the Securities Exchange Act of 1934.
The $18 billion deal, which brought together London-based brokerage Willis Group Holdings P.L.C. and New York-based consulting firm Towers Watson & Co., was completed in January 2016.
John Haley is the current CEO of Willis Towers Watson and Dominic Casserley was CEO of Willis from 2013 until his resignation in 2016. Jeffrey W. Ubben is the CEO of San Francisco-based investment company ValueAct Capital Management, the largest shareholder of Willis at the time of the merger, according to court documents.
The complaint said that on June 30, 2015, Towers Watson and Willis announced the merger agreement, where Towers Watson stockholders would receive 2.649 shares of Willis stock and a $4.87 per share cash dividend in exchange for each Towers Watson share. Towers Watson shareholders would own 49.9% of the combined entity, with Willis shareholders owning the remaining majority.
“The merger required the approval of a majority of Towers shareholders,” the complaint said, “and it became immediately apparent that many Towers shareholders were dissatisfied with the consideration they would receive in the deal.”
The complaint said the Towers’ board of directors saw the waning shareholder support for the originally agreed upon merger and authorized Mr. Haley, Towers chairman and CEO, to renegotiate the deal terms, including both the exchange ratio and the cash dividend
“Haley, however,” the complaint said, “had an economic incentive for the deal to be consummated and when he recognized that Towers shareholders would likely reject the deal, Haley conspired with Willis executives and a major Willis shareholder, ValueAct, to secretly help them execute this transaction.”
The complaint alleges that Mr. Haley decided to “sell out” Towers Watson shareholders in exchange for an undisclosed promise of a three-year, $165 million pay package when he became CEO of the merged company. In return, the complaint said, Mr. Haley did not negotiate to maximize the value of Towers shares and instead worked to persuade Towers’ board and shareholders that “a meager $5 increase in the special dividend was the most he could extract from Willis.”
“As a result of Haley’s disloyalty and self-dealing,” the complaint said, “many of the representations made to investors in the Towers and Willis joint proxy materials were false and misleading.”
Among other things, the complaint said, the proxy materials omitted the fact that Mr. Haley negotiated his compensation as the future CEO of the combined entity, and that several statements made by Mr. Haley in support of the merger were secretly “ghostwritten” by ValueAct.
A Willis Towers Watson spokesman declined to comment on the lawsuit and ValueAct did not respond to a request for comment. Mr. Casserly is a senior advisor with New York private equity firm Warburg Pincus and a spokeswoman for the firm declined to comment.
The class action was brought on behalf of all Towers Watson shareholders of record as of October 2, 2015, the record date for shareholders to be eligible to vote on the merger between Towers and Willis.
Cambridge Retirement System represents about 5,900 active and retired public employees from Cambridge, Massachusetts, and manages more than $1.2 billion in assets to provide for them in retirement, according to the complaint.
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.”