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Shareholder suit over Towers Watson merger with Willis dismissed


A Delaware Chancery Court vice chancellor on Thursday dismissed a shareholder lawsuit challenging the 2016 $18 billion merger between Willis Group Holdings PLC and Towers Watson & Co. on the basis that Towers CEO John J. Haley, Towers’ lead negotiator, had a conflict of interest in negotiating the deal.

Plaintiffs claimed Mr. Haley agreed to the lowest offer shareholders would accept because he had been offered a pay increase, according to Thursday’s ruling by the Delaware Chancery Court in Wilmington in In Re: Towers Watson & Co. Stockholders Litigation.

Towers stockholders had delayed a stockholder vote on the deal after it was first announced in response to stockholders and analysts’ criticism it was a windfall for Willis because Willis’ financial condition had worsened and Towers’ had strengthened in the previous months, according to the ruling.

Mr. Haley then renegotiated the transaction, securing a dividend for Towers’ stockholders that was more than double the amount previously agreed upon by the parties, the ruling said.

The plaintiff in the litigation, Anchorage-based Alaska Laborers-Employers Retirement Trust, charged that during the period between the time the initial deal was struck, but before Mr. Haley secured a higher dividend, defendant San Francisco-based ValueAct Capital Management LP Trust, which held more than 10% of Willis stock, made an allegedly undisclosed proposal to Mr. Haley.

Under this proposal, Mr. Haley “would receive materially greater upside in his compensation post-merger than he had received pre-merger,” said the ruling.

“The plaintiffs say this proposal misaligned the CEO’s incentives at a critical juncture in the negotiations, inspiring him to ask for no more of a dividend than he believed necessary to secure Towers’ stockholder approval.”

This argument was rejected by the court in the ruling. At issue in the case is the business judgment rule, which upholds a director’s decision so long as it is made in the belief he was acting in the company’s best interests, in good faith and in a reasonably prudent manner.

“The fact of the allegedly undisclosed compensation proposal fails to rebut the business judgment rule,” said the decision. “At bottom, the Towers board knew that the CEO would become CEO of the combined company post-merger, that the combined company would be much larger, and that the CEO thus would be entitled to increased compensation,” it said.

“Knowing this potential conflict, the board nevertheless appointed the CEO as lead negotiator but kept apprised of the negotiations.

“Further, the compensation proposal was a proposal only; it reflected a theory of compensation and upside potential in the event of pie-in-the-sky outcomes unconnected to any business plan or forecast.

“Given what the board already knew, and the nature of the compensation proposal at issue, a reasonable board member would not have regarded the proposal as significant when evaluating the proposed transaction,” said the ruling, in granting the defendant’s motion to dismiss.

Attorneys in the case had no comment or could not be reached.



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