The merger of HR consultancy Towers Watson and insurance broker Willis Group raised plenty of cross-border challenges for their legal advisers at Gibson, Dunn & Crutcher on both sides of the Atlantic. Edward Russell-Walling reports. 


Left to right: Nigel Stacey, Stephen Glover and Tamas Lorinczy

In January, human resources consultancy Towers Watson and insurance brokers Willis Group completed their 'merger of equals' to become Willis Towers Watson. While Willis Group was Ireland-based, Towers Watson was headquartered in the US. However, both firms had extensive US and international operations, and both took legal advice solely from US and Irish law firms. A UK partner of Gibson, Dunn & Crutcher, which advised Towers Watson, claims that no British law firm could have handled the transaction on its own.

Towers Watson majors in risk management and human resources consulting and was listed on Nasdaq. It is descended from R Watson & Sons, the world’s oldest actuarial firm, founded in Manchester in 1878. The eponymous Henry Willis became an insurance broker at Lloyd’s of London in 1841. The insurance brokers Willis Group was listed on the New York Stock Exchange and domiciled, for tax reasons in Ireland but effectively headquartered in London. As the smallest of the global 'big three' in its industry, after Marsh & McLennan and Aon Benfield, it has been keen to bulk up.

The CEOs of the two businesses began speaking to each other early in 2015, believing a merger would offer synergies in revenues as well as costs, with plenty of cross-selling opportunities.

Cross-border capacity

“Towers Watson’s general counsel reached out to us to say they were interested in [a legal adviser with] cross-border capacity, and the ability to put together a London team that would have credibility in the boardroom,” says Stephen Glover, Washington, DC-based co-chair of Gibson, Dunn’s mergers and acquisitions (M&A) practice.

Gibson, Dunn’s relationship with Towers Watson and its antecedents goes back some 15 years. The firm was an adviser on the merger of R Watson & Sons and the Wyatt Company in 2005, to form Watson Wyatt, and that company’s subsequent union with Towers Perrin in 2010 to create Towers Watson. In this latest merger, Perella Weinberg Partners and lawyers Weil, Gotshal & Manges advised Willis, while Towers Watson was advised by Bank of America Merrill Lynch alongside Los Angeles-headquartered Gibson, Dunn.

Having London-based lawyers on board was thought desirable on a number of levels. The firm would need an understanding of the European takeover code and would have to advise on the structure of the new entity. Among the key corporate issues to be resolved was where the combined company would be incorporated. Should it be in the UK, for example, or should it stay domiciled in Ireland (where the takeover code is similar to that in the UK)? “It was important to have UK corporate lawyers to help weigh that up,” says Mr Glover.

Each business was regulated in at least 50 different jurisdictions around the world and, given time zone constraints and familiarity with local laws, it was easier to deal with them from London than from the US. “In the period between signing and closing, we handled about 50 regulatory filings, almost exclusively out of the UK,” says Mr Glover.

As well as navigating US tax rules, which can penalise companies that move away to another jurisdiction, the deal also required a focus on UK and Irish tax issues. Even more specifically, as a precursor to the merger, Towers Watson had to terminate a strategic alliance with insurance broker and employee benefits specialist Jardine Lloyd Thompson, all of whose principals were based in the UK.

Tight timescale

The teams were instructed in early May 2015. They had seven weeks to lay the groundwork for an announcement at the end of June. “That was a challenge,” says London-based Gibson, Dunn partner Nigel Stacey. “It was a testament to both sets of lawyers that it got done within the time frame.”

Negotiations had to take place over a range of US, UK and Irish corporate issues, and some complex tax planning was required. “The businesses generate revenues around the world, so ensuring a tax-efficient outcome was important,” says Mr Stacey.

Ensuring a merger of equals added another layer of complexity, since the entities that underwent a change of control varied by jurisdiction. “One of the challenges was explaining to regulators the structure of the combined group,” says London-based Gibson, Dunn solicitor Tamas Lorinczy. “Every modification required ongoing dialogue with the regulator, and explaining each and every element could be quite laborious.”

The demands of ‘equality’ permeated negotiations between the two companies, with the same number of bankers representing each party at every meeting. “If you asked for something, you knew they would ask for the same thing from you, so you tailored your request accordingly,” says Mr Stacey. “Equality drove what you requested in covenants and in remedies in the US.”

Making a match

It has become part of M&A practice for the target to promise to pay a break fee if it chooses ultimately to walk away from the deal. In the name of equality, this transaction required both sides to commit to a break fee – of $225m.

In some respects, however, equality made matters easier. “Traditional M&A is a zero sum game in which you look to maximise your advantage,” says Mr Glover. “So the acquirer will place strict limits on how the target operates the business between signing and closing so that it does nothing to damage the business.” In this case, however, the parties were less demanding.

There was an acquirer, nonetheless, and, given US Securities & Exchange Commission accounting requirements, it made more sense if it was Willis. So the final structure gave Willis shareholders 50.1% of the merged entity and Towers Watson 49.9%. The company is listed in New York and domiciled in Ireland. Towers Watson provided the new CEO and Willis’s former CEO becomes president and deputy CEO. The Willis chairman is now chairman of the combined business. Towers Watson shareholders received a one-off cash dividend.

Late hurdles

Of course, it was not quite that easy, and various Towers Watson shareholder groups challenged the terms and voted against the merger at their first opportunity in November. After the special dividend had been slightly more than doubled, however, they approved the $18bn deal in a subsequent vote in December. 

In 2015, in the Thomson Reuters ranking of global law firms, Gibson, Dunn made it into the top 15. This was the largest cross-border merger that it has advised on so far and, says Mr Stacey, is an example of how it can mesh US expertise with a “tier one credible team in London”. Furthermore, he adds, an English law firm could not have done it.

“They have great guys in London, but when it comes to the US aspects they have to team up with a US firm,” he says. “And that means a different dynamic. You can’t speak quite so bluntly with partners in a different law firm.”

Mr Stacey says that the big City of London firms – the so-called Magic Circle ­– have trouble attracting talent in the US and, for the most part, have been unable to find willing US firms with which to merge. Hogan Lovells is a rare example of such a merger. Mr Stacey argues that most US firms are reluctant to dilute their superior profitability by merging with a UK partnership or, given the sheer size of Magic Circle firms, to see their power bases move to London.

Some have tried to build their own franchises in the US but, Mr Stacey reckons, have struggled to hire the best people. “Some 65% of the global legal market is in the US,” he says. “So US firms have got the cheque book, and if you work for an English firm you get paid less.”

While Gibson, Dunn’s London practice shrank after 2008, it is now growing again. It has taken on four partners from City firm Ashurst in the past year, including Mr Stacey himself and former Ashurst senior partner Charlie Geffen. It already has a healthy litigation, corporate and M&A practice and has been hiring more capital markets and private equity specialists. “Our next focus will be on regulatory and high yield,” says Mr Stacey.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter