Willis Group and Towers Watson revised their merger agreement this week, altering the all-stock, $18 billion deal announced June 30.

Also see: “How will Willis investors react to the revised Towers Watson deal?”

Towers Watson shareholders, who filed multiple class-action lawsuits against the Arlington, Va.-based firm, likely prompted the amendment, says Michael Turpin, executive vice president at USI Insurance Services.

Turpin, the former CEO of UnitedHealthcare’s Northeast region who has 32 years of experience as a broker, consultant and healthcare executive both in the U.S. and Europe, shares his thoughts on the merger and what it could mean for the whole industry:  

What do you think the amended deal means?

It's my experience that when a stock deal needs to be amended, the shareholders believe that management is letting the asset go at too big a discount. Towers senior management has been eyeing the changing benefits market for some time and may  have felt that organic value creation would get harder without a distribution partner — especially when the future of certain segments of their business ( e.g. large employer benefits consulting revenues impacted by private exchanges) is not totally certain. 

Why do you think it was revised?

Reluctant shareholders may have been under the assumption that Towers’ underlying assets — most notably their exchange-based businesses — have more intrinsic value than the initial sales price might have suggested. While exchange enrollments have lagged expectation, many feel that this is a symptom of a slow adoption rate of employers and not a leading indicator of a failed trend.

The next two years may result in a tipping point moment (e.g. the Cadillac tax) where many believe the market could experience a huge shift to defined contribution plans and the firms that offer those administration and technology platforms.

Willis sees a huge cross-sell opportunity to many of Towers’ health and welfare only global multinational clients.  

Do you think the merger poses any potential risk?

Execution risk is real in that there are practice and geography overlaps and strong egos in the traditional health and benefits firms. Towers is a fee for service, time accounting based adviser, where Willis is predominantly a national benefits broker. The cultures are different. 

If the benefits operations must report to Willis geographies headed by Willis risk management leaders, we could see risk to Towers colleagues who may not like matrixed oversight from non-health and welfare colleagues. If Towers runs benefits as a straight line P&L, you may see more tension and channel conflict between practices and geographies and potentially some displaced Willis benefits executives. 

What could it mean if the deal goes through?

Clearly, Willis sees the value that the combination of Hewitt and Aon created. A Towers/Willis marriage is complementary and would give Willis a benefits capability comparable to their risk management business.

Willis Benefits has never achieved the cache or client roster of a Towers Watson. Towers gives them depth and expertise across a range of HR and benefits capabilities. Willis aspires to be a natural alternative to Aon and Marsh across all lines of risk and insurance business. Towers gets them closer to this reality.

It's clearly a powerful combination. However, the devil is in the details and the promised value creation that is multiples of the amended offer depends heavily on the execution of this combination. As with many mergers, it is always depicted as a marriage of equals — it never is. 

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