ValueAct Capital Voices Strong Disagreement with ISS Voting Recommendations for Towers Watson Stockholders

Nov 10, 2015, 08:30 ET from ValueAct Capital Management, L.P.

SAN FRANCISCO, Nov. 10, 2015 /PRNewswire/ -- ValueAct Capital Management, L.P. today issued an open letter to Towers Watson & Co. Stockholders (NASDAQ: TW), the full text of which is set forth below.

Dear Fellow Towers Watson Stockholders,

On November 5, 2015, the proxy advisory firm Institutional Shareholder Services, Inc. ("ISS") recommended that Towers Watson & Co. ("Towers Watson") stockholders vote against the pending merger with Willis Group Holdings plc ("Willis").  While we realize we will likely be accused of "talking our own book," we feel compelled to comment on ISS' approach, which we believe has implications for not only this deal, but a variety of other M&A transactions in the future. In this particular case, ISS' decision to recommend a "no vote" was largely based on the small premium that Willis stockholders received in the deal and ISS' interpretation of short-term stock price movements around the deal announcement.

ISS puts far less weight on the long-term value of the merger, with synergies that are expected to result in 45% accretion to Towers Watson's standalone earnings by the third year. These synergy projections are supported by the long-term track record of Towers Watson's management team and board of directors, which have compounded stockholder returns at 15% per year over fifteen years. This is a track record that warrants increased trust, not heightened skepticism. In a stock deal, where all investors can participate in the long-term value creation, the bar should be very high for ISS to frustrate a heavily negotiated and very strategic deal. In this case, however, such a bar appears to have been set far too low.

It is a shame that ISS could cause the dissolution of a deal that even it doesn't dispute should be highly accretive to both sets of stockholders over a multi-year time horizon, and in which both management teams and boards have stated appropriately values their standalone prospects. It is indisputable to say that the deal would be better for Towers Watsons stockholders if they got better economics. Likewise, the deal would clearly be better for Willis stockholders if they received a premium in-line with other transactions involving Irish domiciled companies merging with US C-corps. But, at the end of the day, this is a fair deal negotiated in good faith by two management teams and boards of directors. These companies seek global scale to succeed in a slow growth, low inflation environment, much like their key competitors have already done. The discretion of both boards to create a durable platform for growth with significant long-term upside should be respected. The suggestion that the Towers Watson Board did not do its job in exploring a quick-hit cash premium rings hollow.

The implications of this final point are what cause us the most concern. The behavior that ISS is legitimizing actually has a name among M&A professionals, "bumpitrage." This is one of the most short-term flavors of stockholder activism, particularly in situations where the stockholder activists purchase the target company stock exclusively to lobby for the proverbial bump. ISS encouraging stockholders to walk away from a highly accretive deal if they do not receive a renegotiation of the deal economics incentivizes the very shortest-term profiteering. It gives an opening for short-term investors to run into every deal and attempt to collect a tax. When this goes badly, longer-term stockholders suffer the opportunity costs of missed value creation.

It is for these reasons that ValueAct Capital, as a Towers Watson stockholder, strongly disagrees with ISS and instead intends to vote in favor of the Towers Watson merger with Willis Group at the upcoming special meeting of Towers Watson stockholders.

About ValueAct Capital

ValueAct Capital is an investment management firm founded in 2000 with assets under management of approximately $18 billion. ValueAct Capital's investment strategy combines intensive due diligence, a concentrated number of investments, and active, constructive involvement in the value creation at those investments.


ValueAct Capital Master Fund, L.P. ("ValueAct Capital") beneficially owns 475,000 shares of common stock of Towers Watson & Co. ("Towers Watson").  ValueAct Capital also beneficially owns 18,423,835 ordinary shares of Willis Group Holdings plc ("Willis Group"), representing approximately 10.2% of the outstanding Willis Group ordinary shares, and has one representative on the Willis Group Board of Directors.  Stock holdings are subject to change, and ValueAct Capital may buy shares of Towers Watson or Willis Group, or sell shares of Towers Watson or Willis Group, at any time. The discussion of securities should not be viewed as a recommendation to buy, sell or hold any particular security.

On June 29, 2015, ValueAct Capital, along with certain affiliated funds of ValueAct Capital, and Towers Watson entered into a Voting Agreement pursuant to which, among other things, ValueAct Capital agreed to support the transactions contemplated by the Agreement and Plan of Merger, dated June 29, 2015, by and among Willis Group, Citadel Merger Sub, Inc., a Delaware corporation and a subsidiary of Willis Group, and Towers Watson (the "Transactions").  ValueAct Capital intends to vote all Willis Group ordinary shares owned by ValueAct Capital in favor of the Transactions in accordance with the Voting Agreement at the Extraordinary General Meeting of Willis Group (the "Willis Group EGM") on November 18, 2015.

ValueAct Capital is not engaged in a proxy solicitation, is not soliciting proxies relating to either the Towers Watson stockholder meeting or the Willis Group EGM and does not have, and is not seeking, the authority to vote your proxy at either meeting.

This material is for general informational purposes only and is not intended to be relied upon as investment advice. The opinions expressed are those of ValueAct Capital as of the date hereof and are subject to change at any time due to changes in market or economic conditions.

The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by ValueAct Capital to be reliable and are not necessarily all inclusive. ValueAct Capital does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass.  Reliance upon information in this material is at the sole discretion of the reader.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements.  All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are forward-looking, including statements regarding ValueAct Capital's expectations regarding its portfolio and its investment in Towers Watson or Willis Group and statements that include the words "anticipate," "believe," "expect," "estimate," "plan," "will" and similar expressions are generally intended to identify forward-looking statements.  These statements are based on current expectations of ValueAct Capital and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict, and are based upon assumptions as to future events that may not prove to be accurate.  ValueAct Capital does not assume any obligation to update any forward-looking statements contained in this press release, except as required by applicable law.


SOURCE ValueAct Capital Management, L.P.