ISS Advice on Willis-Towers Deal ‘Encourages’ Short-Term Shareholder Activism

By and | November 11, 2015

Institutional Shareholder Services’ recommendation that Towers Watson & Co. investors vote against the proposed merger with Willis Group Holdings Plc is legitimizing short-term shareholder activism, ValueAct Capital Management said.

The report encourages “bumpitrage,” which is where shareholder activists purchase the stock of a target company to lobby for a bump in the deal terms, ValueAct said Tuesday in a statement. Jeff Ubben’s activist fund ValueAct is the second-largest shareholder in Willis Group, the London-based insurance broker.

“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,” ValueAct said in the statement. “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.”

Willis agreed in June to merge with Towers Watson to add consulting services, helping it challenge more diversified insurance rivals Aon Plc and Marsh & McLennan Cos. Last week, proxy advisers ISS and Glass Lewis & Co. recommended Towers Watson investors vote against the deal, saying the valuation was unfavorable for the firm.

ValueAct’s Ubben joined Willis’s board in July 2013, and has championed the deal since it was announced. He said in October that he expects the deal to be completed this year and probably double earnings by 2018. ValueAct manages more than $19 billion and often agitates for sales among other changes at companies in which it invests.

In the proposed deal, Willis investors would own 50.1 percent of the combined company, to be domiciled in Ireland and led by Towers Watson CEO John Haley. Towers Watson holders would get 2.649 Willis shares and a one-time cash dividend of $4.87 for each share they own.

[Editor’s Note: Towers Watson & Co. announced that proxy advisers Proxy Mosaic LLC and Egan-Jones Ratings Company have both recommended that Towers Watson stockholders vote for the “proposed merger of equals with Willis Group Holdings.” See related article.]


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