Good morning, welcome to the conference call regarding today's announcement that Willis Group and Towers Watson have agreed to combine in a merger of equals. Today's call is being recorded. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star and then one on your telephone keypad. I would now like to turn the call over to Peter Poillon, Director of Investor Relations for the Willis Group. Please go ahead, sir.
Thank you. Welcome to the conference call to discuss the merger of equals between Willis Group and Towers Watson. Before we start, I'd like to highlight the following. This conference call shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933 as amended. Willis plans to file with the SEC a registration statement on Form S-4 in connection with the transaction.
Willis and Towers Watson plan to file with the SEC and mail to the respective shareholders a joint proxy statement prospectus in connection with the transaction. The registration statement and the joint proxy statement prospectus will contain important information about Willis, Towers Watson, the transaction, and related matters. Investors and security holders are urged to read the registration statement, the joint proxy statement prospectus, and other related documents carefully when they are available. Investors and security holders will be able to obtain free copies of the registration statement, the joint proxy statement prospectus, and other related documents filed with the SEC by Willis and Towers Watson through the website maintained by the SEC at www.sec.gov or by visiting the investor relations sections of Willis' or Towers Watson's website at www.willis.com or www.towerswatson.com. Regarding forward-looking statements, this document contains forward-looking statements that involve a number of risks and uncertainties.
Statements that are not historical facts, including statements regarding expectations, hopes, intentions, or strategies regarding the future, are forward-looking statements. Forward-looking statements are based on Willis or Towers Watson's management's beliefs as well as assumptions made by and information currently available to them. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Willis and Towers Watson undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The risks and uncertainties which forward-looking statements are subject to include, but are not limited to, the ability to consummate the proposed transaction, the ability to obtain requisite regulatory and shareholder approvals and the satisfaction of other conditions to the consummation of the proposed transaction on the proposed terms and schedule, the ability of Willis and Towers Watson to successfully integrate their respective operations and employees and realize synergies and cost savings at the times and to the extent they anticipated. The potential impact of the announcement or consummation of the proposed transaction on relationships, including with employees, suppliers, customers, and competitors. Changes in general economic, business, and political conditions, including changes in the financial markets. Significant competition that Willis and Towers Watson face. Compliance with extensive government regulation.
The combined company's ability to make acquisitions and its ability to integrate or manage such acquired businesses and other risks detailed in the statement regarding forward-looking information, risk factors, and other sections of Willis' and Towers Watson's Form 10-K and other filings with the SEC. I'll turn the call over to John Haley, Chairman and CEO of Towers Watson.
Thank you, Peter. Good morning, everyone, and good afternoon. Thanks for joining us on short notice to discuss the exciting announcement that Towers Watson and Willis Group will combine in a merger of equals to create Willis Towers Watson, a leading global advisory, broking, and solutions firm. I'm John Haley, Chairman and CEO of Towers Watson, and I'm here together with Dominic Casserley, the CEO of Willis.
Good morning and good afternoon to everyone.
Also on the line with us today are the CFOs of both companies, Roger Millay and John Greene. Both will be available to answer your questions. You will have seen the release we put out this morning announcing the signing of a definitive merger agreement under which Towers Watson and Willis will combine in an all-stock merger of equals transaction. Over the next hour, Dominic and I will take you through why we think this is a perfect natural fit, how the transaction will proceed, and what the opportunity for the combined firm is and what it will look like. We will be happy to take your questions. Turning to slide seven. I've had the privilege of working for Towers Watson or one of its predecessors for nearly four decades.
In that time, I've been an active participant in its growth and transformation into the leading client-focused HR and risk advisory and solutions business that it is today. Today's announcement is the exciting next step in this evolution. The merger of Willis and Towers Watson is a tremendous combination of two highly compatible companies. We have complementary strategic priorities, product and service offerings, and geographies to deliver significant value to both sets of shareholders. Both companies are client-first organizations. This combination enables us to better serve current and future clients. It also provides growth opportunities for our people by creating a powerful, integrated global platform with offerings across the advisory, broking, special capabilities, and solutions spectrum.
By offering a broader array of services to a larger global client base, we expect that this transaction will significantly accelerate profitable growth through increased client penetration across business segments in key fast-growing markets. There are also clear cost savings and efficiencies that we expect to achieve over the next three years. As Dominic will discuss later on, we're highly confident in our ability to deliver significant cost synergies. Let me ask Dominic to discuss what we believe to be the significant value to shareholders of this transaction.
This merger of equals will enable us to generate superior shareholder value by accelerating revenue, cash flow, EBITDA, and earnings growth. As slide eight shows, there is a balanced set of drivers to support this value creation, with each company bringing benefit to the other. Starting with the left side, you can see the tangible revenue growth opportunities by geography, which we believe will be easily captured to increase the top line. Willis can help Towers Watson broaden its international reach through Willis' global footprint, expanding their reach by more than 80 countries. The broad global footprint will enhance Towers Watson's global health and group benefits solution and exchange platform. We'll also leverage both companies' ability to serve multinational human capital and benefits clients and allowing the combined company to provide more multinational corporations with local market solutions.
In North America, Willis will be able to rely upon Towers Watson's large company relationships to increase our penetration in the more than $10 billion U.S. large P&C corporate market. Towers Watson will be able to accelerate the growth of its OneExchange offering through increased access to Willis' existing U.S. middle market distribution channels. On the right, you see the cost side of the story. As John mentioned earlier, we have identified significant cost synergies and efficiencies that are highly achievable. Specifically, we expect to fully realize $100 million-$125 million of cost synergies within three years of closing. We'll provide more detail later, but these synergies are incremental to current operational efficiency initiatives already underway at each organization. As we'll discuss more later, we have a well-defined integration roadmap to capitalize on these identified savings.
Further, we will maintain our Irish domicile, which will enable us to achieve an effective tax rate in the mid-20% range for the combined entity.
Moving on to Slide nine is a broad overview of the transaction structure, including shareholder consideration and governance, both of which we'll describe in more detail in a moment. Before we do that, I do want to note that we expect this transaction to close before the end of the year, subject to the votes of both sets of shareholders, as well as the usual regulatory approvals and customary closing conditions. On Slide 10, this transaction is a true merger of equals, as demonstrated by the shareholder ownership of the combined entity and the agreed governance and organizational structure. The merger will provide Towers Watson shareholders with the opportunity to convert each one Towers Watson share into one Willis share post-split and also receive a one-time cash dividend of $4.87 per Towers Watson share.
Subject to Willis shareholder approval, Willis will implement at the time of the merger a 2.6490 for one reverse stock split, so that each one Willis share will be converted into 0.3775 shares of the combined company. Please note, the merger is not conditioned on approval of the reverse stock split. On a fully diluted shares basis then, Willis shareholders will own approximately 50.1% and Towers Watson shareholders will own approximately 49.9% of the combined company post-closing. On Slide 11, you can see the combined company's operating committee. As a testament to the spirit of partnership between our organizations to date, we're pleased to have this structure already in place with balanced representation from each company, reflecting the truly cooperative nature of this merger and the high quality of the talent pool.
I'm honored to take on the role as CEO. I will work closely with Dominic as president and deputy CEO. Each of us will sit on the board, which will consist of 12 directors total, six nominated by Willis and six by Towers Watson. In addition to shared management responsibilities of Willis and Towers Watson leadership, I also want to point out that this structure is tailored to ensure that we maintain a significant presence in major markets and businesses globally. The strength of the combined enterprise will enable us to retain and attract the highest caliber talent from around the world. Moving on to Slide 12. Recognizing that our respective sets of shareholders may not be familiar with either Towers Watson or Willis, we wanted to give a quick overview of both before turning our attention to the pro forma entity.
Towers Watson provides a variety of HR and risk advisory services and solutions. Our client base includes many large multinational clients. Many of these relationships have spanned decades. I do want to draw particular attention to the exchange solutions segment as it is a key element of this transaction for Towers Watson. We're one of the leading exchange providers in this rapidly growing market. We'll discuss this in more detail later in the presentation. I'd like to make one point here. This merger will enhance our position in the fast-growing middle market exchange space.
Thanks, John. I'm going to turn to Slide 13. As for Willis, we are a leading advisory, broking, and human capital and benefits firm organized in four business segments. We use our risk advisory, employee benefit consultancy, insurance and reinsurance expertise to develop tailored solutions helping our clients identify, mitigate, manage, and transfer risk. We've been growing our business through a clear strategy of organic growth, carefully targeted M&A, and operational improvement. We have operations in more than 120 countries and rising with a fabulous client base around the world, including international corporates, insurance companies, and a broad base of middle-market clients. On Slide 14, you see in one visual the powerful platform for global growth this merger is creating.
It is a truly comprehensive offering covering advisory, broking, and solutions with genuine global scale in each of benefits, re and insurance brokerage and advisory, talent and rewards, risk and capital management, and exchange solutions. Taken together, this presents a broad set of services and solutions that we believe will have significant appeal for clients across segments and geographies. Slide 15 provides a snapshot of what this integrated global advisory, broking, and solutions firm looks like on a pro forma basis. Looking at the left, you can see Willis Towers Watson will have approximately 39,000 employees in over 120 countries and pro forma revenue of approximately $8.2 billion. Willis and Towers Watson use different non-GAAP EBITDA measures. We at Willis report underlying EBITDA, while Towers Watson reports adjusted.
Add the two together for the 12 months ended December the 31st, 2014, the combined company's pro forma adjusted plus underlying EBITDA would be $1.7 billion. This includes our acquisitions of Miller and Gras Savoye and full-year run rate contributions for our acquisitions of ISG, Max Matthiessen, and Charles Monat, and of course, excludes any synergies from the combination we are discussing today. On the right side, you can see how this merger enhances both our business and geographic mix, better diversifying our businesses and creating greater geographic reach.
As we mentioned earlier in the call, this merger creates some unique and very real opportunities to accelerate incremental revenue growth. Let's turn to slide 16. We see numerous ways that we can enhance our growth profile by using Willis's distribution network and superb broking and risk advisory capabilities to deliver a more robust set of analytics and product solutions across a broader client base. At Towers Watson, we're very excited that this merger will allow us to leverage Willis's distribution network to accelerate the growth of OneExchange in the middle market, and Dominic will speak to that directly. We've also been clear that expanding into large cap P&C is a strategic priority for us. We will leverage our strong existing relationships with over 800 Fortune 1000 companies to introduce Willis's product suite.
Our clients' decision to enter a new market is made much easier when you have access to on-the-ground local knowledge and expertise. Given the expanded international presence of the combined company, we will have a unique opportunity to serve more multinationals around the world across more lines of business. Willis's global footprint is a great platform to help Towers Watson expand internationally, and the combined company will be able to deliver more comprehensive local market solutions to a greater number of multinational companies. Dominic, do you want to speak to the exchange solutions platform?
Absolutely. That's covered on slide 17. I cannot underscore how exciting this proposition is. It is very important to us. Many of you may not realize that Willis is already one of Towers Watson's strongest channel partners for the health exchange. Towers Watson has a leading private health insurance platform, OneExchange, which has rapidly grown to serve more than 1 million members in the United States. Many independent analysts believe that this is just the start and that the business is at an inflection point, with the total market likely to grow significantly within 5 to 7 years.
As much of the early adoption is expected to come from the middle market, Willis's established position as a U.S.-leading middle-market franchise presents tremendous growth potential for Towers Watson's OneExchange platform, helping the combined company reach Towers Watson's standalone goal of achieving a 25% share of the total exchange market. Additionally, we will continue to focus on channel partners' distribution to enhance the direct-to-market offering of the combined company. Now let's turn to slide 18. In addition to the substantial revenue-generating potential of the combined company, we expect to boost EBITDA and earnings growth through the realization of $100 to $125 million in run rate cost savings and efficiencies within three years after the transaction closes, with the total expected one-time cost to achieve these synergies approximately 1.25 times annual savings. This is in addition to the tax efficiencies derived from Willis's Irish domicile.
We expect the tax rate to settle in the mid-20% range within two years. I will turn it to John to discuss how we are preparing to capitalize on these synergies and realize the full benefits of this combination through our methodical approach to integration on slide 19.
Thanks, Dominic. Slide 19 illustrates our roadmap to a successful integration. Both Towers Watson and Willis have completed a range of transactions, from smaller bolt-ons to the transformative Towers Perrin, Watson Wyatt merger that formed Towers Watson in 2010. Collectively, we have extensive integration experience. We've established a joint integration team, which will be overseen by Dominic and Gene Wickes, the global leader of the benefits segment from Towers Watson, who was integral in integrating Towers Perrin and Watson Wyatt. We will tailor a well-defined integration process to the specifics of this merger so that we are able to achieve the best combination of talent and practices.
Recognizing that our talent is our most important asset, we will, of course, ensure that our associates are kept informed of the progress we're making. Both companies are committed to maintaining an unwavering focus on taking care of our respective clients during this intervening period. Because our organizations share a client-first mentality and a focus on providing services and solutions that consistently exceed clients' expectations, we are confident associates across both organizations will enjoy increased development opportunities as part of a stronger and more global growth company.
Let me take you to the last slide 20. As you can see, both John and I believe that this is a unique opportunity to allow shareholders of both companies to participate in the value creation potential of this exciting new platform for accelerated global growth. We look forward to bringing these two companies together over the coming months and to realizing the growth potential of the combined company for the benefit of our shareholders, associates, and clients. With that, we're happy to take your questions. Over to the operator.
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star and then one. If your question has been answered or you would like to remove yourself from the queue, you may press the pound key. Again, those instructions are star and then one to ask a question. Our first question comes line of Sarah DeWitt from J.P. Morgan. Your line is open.
Hi, good morning. First, I was wondering if you could talk about the expected earnings accretion from the merger. Secondly, on the price, it seems to be implying a price for Towers Watson of about $125 below the current stock price. Could you talk about how you came up with that value?
Dominic, do you want to address the accretion or do you want Roger or John to talk about that?
I think this is a Roger Millay/John Greene opportunity.
Yeah.
Which one of you would like to go first?
Yeah. Maybe I'll make the first comment. This is Roger Millay. First, the way we looked at accretion overall was really that this is not an acquisition, so it will be accretive for both players coming into the new company, and achieving accretion through the strategic revenue enhancement and cost benefits that John Greene and Dominic Casserley talked about.
Okay. I would just add one other piece on the accretive nature of the deal is certainly the revenue and the cost synergies identified, but that mid-20s tax rate is certainly a benefit for the combined organization. If you take a look at Willis' tax rate, about 25, the Towers rate is higher. We expect to bring the total tax rate into about the range that the Willis rate is at, which will certainly create both a P&L and a cash benefit. Okay. Let me just address the issue of the finances of the deal or the actual details of that.
If you look back to the market capitalizations of both Towers Watson and Willis, and you look back over the last year and a half or so, say back to the beginning of 2014, you'll see that for most of that time, the two of them are locked very closely together. There's a period in the middle of 2014 where Willis opens up a bit of a gap above Towers Watson. In the more recent month or so, Towers Watson has opened up a bit of a gap between Willis. Frankly, when we were looking at this deal, we were trying to approach this on a long-term basis as to what we thought the values were of bringing these two firms together and taking this long-term strategic view and not actually focusing on a particular short-term measure of what happened.
When we first started our discussions at the beginning of April, throughout April, the market caps of the two companies were again very close to one another. We had our discussions about setting the exchange ratio during May. At the end of May, if we took a 60-month moving average of the two companies' market caps, and we adjusted for the dividend of $4.87 that we had there, that's how we came to the 50.1/49.9 split. This is a deal that we believe was struck on a market value basis. It wasn't done on a spot
price at a single day, but it was done on a two-month moving average. We think that was an appropriate way to do it. Oh, did I say 60-month moving average? I meant 60-day moving average. Thanks very much. 60 months would be a long time.
Thank you. Our next question comes line of Joshua Shanker from Deutsche Bank. Your line is open.
Yeah. Good morning, everyone. I'm wondering if you can talk a little about the process. You said you started this in April. Why now? If you look at Aon and Marsh, you could argue that Willis Towers Watson is going to become a company more like those companies with a large broking arm and a large health and welfare benefits arm together. Perhaps this makes sense. Why today versus a year ago? What sort of brought you together?
I'd like to have a go at that. As you know, and we talked about, Willis had a partnership with Towers Watson around the distribution of the OneExchange platform in the exchanges market. John and I were sitting down to talk about that relationship and how it's developing. As we advanced those conversations, they started to broaden and led to the conversations which have led to the announcement this morning. The timing was all around, we had a working relationship already, and we had confidence in each other as a result, and that was the basis of the discussion. As to comparisons with any other companies, I don't want to go there. What I want to tell you is the following. We are very determined to develop an integrated company without divisions or silos.
We will be working very hard on the integration to make sure that we build value-added bridges between the companies to increase revenue growth and to manage expenses on a balanced way. We are very much thinking of this as an integrated, combined organization, very much focused on a merger of equals and balance, and that's the way we're moving forward, and that's our approach.
Dominic, I've asked you about this in the past, but obviously the last quarter has seen a number of departures from Willis that have been somewhat high profile. Were any of these people who were leaving privy to the negotiations going on that could have influenced their decisions, or these people were all outside of the bubble of the Towers Watson Willis negotiation?
The only person who was privy was Steve Hearn. He was fully privy to what was going on. If you were to ask him, he would tell you the following. Highly supportive of this transaction, thinks it's an excellent thing for Willis to be doing. His decisions were personal career decisions.
Thank you very much for the answers.
Thank you. Our next question comes from Tobey Sommer from SunTrust Robinson. Your line is open.
Thank you. A specific question about the exchange business. I understand how you'll be able to facilitate tighter sales by combining Willis' customer set with Towers, et cetera. For those partners, particularly of Liazon in the middle market that are outside of Willis, how do you see managing potential channel conflicts now that you're going to be part of such a large broking firm? Thanks.
Yeah. I think right now with our channel partners, of course, Towers Watson was already selling into the middle market, and then we had a number of channel partners that we offered this white label service to, and they are able to take their own unique approach to a market and blend it with the white label services. That's what we had been doing with Willis. We expect to be able to continue to offer the same kind of services, the same kind of advantages to those people after we complete this transaction than we did before. It's true that with Willis and Towers Watson being together, perhaps our own proposition will be a little bit stronger. We still think we'll have the most compelling offering for those channel partners. There's really no place else that will offer them quite the services we will.
Just two numbers questions. What is the actual tax savings for the combined entity? I understand where the rate will be. Maybe just in terms of dollars, what will be saved by the Irish domicile? If you could comment about the cost synergies, the $100 million-$125 million on a base of $8 billion in revenue. That seems a little bit low. Maybe to the extent you could comment, that'd be helpful. Thank you.
Okay. Let me take maybe the second part of that first. On the savings, they probably are a little bit low. I think when we thought about the savings for this, we wanted to make sure that we had savings that we were absolutely certain we could deliver. We also wanted to make sure that we didn't put ourselves in a box where we were trying to do things that would be detrimental to the ongoing firm. These are savings that we think are locked in. If we can get more and that's appropriate for the new firm, we'll certainly do that. We wanted to be on the safe side there. On the tax issue, I'm not sure that we're really prepared to say much more other than what the tax rate is.
I think to do anything about taxes on an ongoing basis probably requires a great deal of analysis and planning. Roger, do we have that right?
Yeah, I think that's right. I'd just point out the reference point that Towers Watson's tax rate is running around 34%, and we've given the rate of 25%. That gives a good reference point, I think.
Thank you.
Thank you. Our next question comes from Dave Styblo from Jefferies. Your line is open.
Sure. Good morning. Thanks for taking the questions. Just maybe to start out on the tax rate. I know you said you didn't want to get too specific about that, but if you're sort of looking at a 25% tax rate now for Towers, it seems to add close to $1 of earnings. Is there any trade-off of a higher tax rate or an offset that would come from Willis to offset that?
John, this is John Greene. There's no impact to the Willis rate. The transaction when it comes together will allow the combined entity to enjoy Willis's tax structure and tax benefits going forward.
Maybe that $0.90 or $1, at least from where Towers was, is sort of a reasonable number to think about then?
It's not a bad number, Dave.
Just taking a step back, John, I know you've talked about your organic growth and sort of kind of being in the 3%-5%-ish range. I guess as you looked out across businesses, I think you guys used to be in the brokerage business and exited that, and maybe that was sort of on the last of the items when you combined previously to sort of go after. What is it now about the brokerage business that excites you and gets you back into it? More importantly, does it really change the overall organic growth of what the core Towers business was doing, excluding exchanges, which was maybe kind of in that 3%-5% range?
Should we expect something stronger than that as we go forward now that you've got additional revenue synergies from at least the core legacy Towers side of business?
Yeah. A number of things included there. Let me start out by saying I think we were targeting a growth rate for Towers Watson, including the exchanges of more in the 5% to 6% range, and we were focused on getting to that what we call a sustainable growth rate and felt that we were on the right path to get there. In fact, we've been running at that level in recent quarters for sure. When we look at the divestiture of the reinsurance business a few years ago, we undertook that because we said if we were going to be in this business, we needed to be in it in a seriously big way to be able to compete with the people who really know this business, who have the scale to be successful at it.
We felt with the operation we had then we didn't have that. The divestiture was really a recognition that people like Willis brought scale, brought management capability that we just didn't have. When we got rid of it, one of the things that we agonized about was the fact that there were a lot of synergies between that and some of the businesses that we do in our risk and financial services. I think we're delighted by this merger because what it does is it reestablishes some of those synergies, and it does it with somebody who brings a world-class reinsurance business.
Okay. That's helpful. Thank you.
Thank you. Our next question comes from Shlomo Rosenbaum from Stifel. Your line is open.
Hi, good morning. Thank you very much for taking my questions this morning. Hey, John. I've known you for a long time, and you have a history of making acquisitions on Towers Watson that are bold and initially are not appreciated by the market, and then subsequently are really appreciated by the market. What investors are looking at today is your basically a stock price that's trading about a $137 Towers Watson for a $125 of Willis, including the dividend. What are we going to see in two to three years that in your mind is going to make the investors view this similar to what they did with when you bought Towers Perrin and when you bought the initial exchange business?
Yeah. I'm not sure I necessarily would've come to the same numbers you did on the share price, but that's okay. We can talk about that offline, Shlomo, I think. Here's what I would say about this. As I mentioned earlier, we weren't focused on what the spot price was on a particular day, but we were looking at the long-term strategic benefits of this. The kind of things we talked about, the acceleration of the growth. The middle market is the most important market right now in the healthcare and exchange market in the U.S. We think that this gives us terrific capabilities there. We think that the large P&C market that Dominic mentioned in the U.S. is also very helpful. One of the innovations we've been talking about is this global health business.
To do that, we needed to establish brokerage operations in many countries around the world. This deal will immediately add over 80 countries to our network. It'll accelerate the development of that offering, and it'll lessen execution risk. When I look at this, I think of some of these revenue synergies that we have here, and frankly, although as you know, I felt very positive about the Towers Watson merger at the time, I actually feel more positive about this merger than I did about that one.
Do you have a way to give us maybe something that you have in your mind, just a little bit quantifiable about where the growth rate could go from the combined business? In other words, you had the 5%-6%, and Towers Watson was doing pretty well. How would this enhance the existing Towers Watson? Does that move it up a point, two points? Is there some way for us to think about it in terms of putting pen to paper?
I don't think we're in a position to do that at the moment, Shlomo. There will be a time when we'll be able to come to you with that. Frankly, we just don't have that level of detail yet.
Okay. Just finally, the basis of the EBITDA for the two companies is different. Is the $1.7 billion a true addition where when we finally get the numbers and we put them on an apples-to-apples basis, is that what the EBITDA of the company is going to be pre the synergies?
That seems to me like a great question for Roger Millay and John Greene, maybe I'll ask them to comment on that.
It may take both of us, given that as in the remarks, Dominic noted that we have different ways of getting there. I think that, and we haven't determined this yet, but I think it's fair to say, given the approach that both the companies had and the integration impacts, that we will have an adjusted or underlying, we haven't determined what we would call it yet, but we will have a metric like that is determined in the same spirit that each company has come to either the underlying or adjusted metrics. That is to show investors what the true underlying run rate of that profitability measure is and taking out non-recurring or one-time items. As you know, Shlomo, we didn't have much in the Towers Watson side at this point.
When you go back to the merger of Watson Wyatt and Towers Perrin, we did adjust out all of the integration costs. Go ahead, John Greene, you want to add something to that?
Yeah. Roger, well put. The only thing I would add to that, Roger, is that for Willis, the adjusted EBITDA moves out the restructuring charges related to the operational improvement program. As Roger said, there will be certain charges related to bringing these two organizations together, which will certainly be adjusted out of that figure. The ultimate name that we call it, whether it's underlying or adjusted, will be communicated in a consistent way and measured in a consistent way going forward.
I'm trying to understand.
Can I just, John, the only additional thing.
Is it a yes or a no? Is that they are similar.
Just one additional thing, Shlomo.
Yeah.
I'm sorry for talking over you. The other thing we ought to note there is that this also is pro forma for the acquisition activity, particularly Gras Savoye, that Willis is engaged in. Depending on the timing date and the relative closing timings and everything, it is adjusted for that.
Is it fair for us when we're modeling to try and get towards that $1.7 billion? I understand there's certain costs for acquisition and integration activities, and I assume that the 1.25x the $100 million-$125 million, you're probably going to pro forma that as well. I'm saying, just looking at them, if you could add them both together, is it really fair to call this a $1.7 billion EBITDA company?
I would say for now, that's why we provided that number, that we think it is a fair measure. Obviously, we're going to be filing pro forma in registration statement, and there may be an evolution somewhat of the way we look at some underlying specifics, but that's what we believe the appropriate measure from kind of projecting the profitability of the two companies. That's the appropriate measure for now.
Okay. Thank you very much.
Our next question comes from Jay Gelb from Barclays. Your line is open.
Thank you. Dominic, can you give us some perspective, I'm sure it would be in the proxy, but can you give us some perspective on how you approached your strategic review? I was just looking back at your bio, and you've been at Willis as CEO now for less than three years. I'm kind of wondering what brought it to this point to pursue a merger of equals.
This is not a sudden event. From a Willis perspective, when I first came in, as you can imagine, the board asked me to do a broad strategic review of the company and its future potential. That led to some of the moves you saw us make in that time period to continue to build out our benefits platform. At that time, we identified longer-term options around companies which might be interesting to talk to. Obviously, Towers Watson was one of those high on the list. There was a long-term background and dialogue with the board around the benefits opportunity, the opportunity to work with a major benefits organization. That when John and I started to have our conversations, this was not a new idea to our board. As they advanced, the timing felt right. That's the background from our perspective.
Dominic, will you have a contract with the new organization?
I will.
What's the duration on that?
You'll see it be filed with the plan. You'll see the contract then.
Okay. I just wanted to follow up as well on the revenue synergies. Was that quantified?
No, we gave no quantification of that overall. I think we can say that John and I believe that the value of the revenue synergies in terms of a value number around them is a very exciting number, which we think if we can play it out fully will be in the realm of what we see the cost and tax synergy opportunity to be. No, we think the revenue opportunities are very important to the value creation here.
Okay, finally, how will Willis protect its insurance brokerage business? In times of transition, that can be an opportunity for competing insurance brokers to target clients. How does Willis intend to protect its business?
Well, I think this is a straightforward and direct proposition here. We believe this creates the opportunity for us to enhance our property and casualty, if you like, advisory and brokerage activities, both in the primary markets and in the reinsurance markets. We believe it will enhance our client propositions. As you know, we are positioned as the analytical broker and have been investing heavily both in the primary market brokerage and in the reinsurance market brokerage in analytical capabilities as part of a risk management and broking offering. The combination with Towers Watson, with their analytical capabilities, both actuarial capabilities and their understanding of the insurance industry, enables us to advance both those analytical offerings in the corporate market and in the reinsurance market. We believe the proposition to clients will only be enhanced and accelerated in its enhancement through this combination.
From a talent point of view, that's the proposition to talent, too, that this is a way to actually expand and improve our client service, make us a stronger company, and obviously creates exciting career opportunities for a number of our people. We actually think this is very positive for both our clients and our people involved in our core broking activities.
Thank you.
Our next question comes from Dan Farrell from Piper Jaffray. Your line is open.
Hi, and good morning. Just a question regarding all the expense initiatives that are now taking place across the organization. You obviously had separate restructuring initiatives at Willis. Towers was doing some of their stuff as well. I'm less familiar with it. You've got the additional deal merger cost saves. I'm wondering how much you think in total now can fall to the bottom line. Is there need for less reinvestment into the business, or is there need for maybe some more reinvestment into the business because of all of the opportunities that this combination might be generating over time?
I think we continue to believe that as we said in our operational improvement program as it applies to Willis, that the majority of the savings will drop to the bottom line. We are committed to continuing that program. As you know, those of you who follow Willis know that we'll be giving an update on that program with our second quarter earnings, and we look forward to doing that with you. Obviously, we believe that the savings announced here as part of this merger will be additive to those opportunities and the steps that Towers Watson continues to make to improve its operations. When we think about reinvestment, I think in the business, a lot of the things we're talking about here involve coordination and working together, but not huge investments.
If we think about helping us, Willis expand in the large corporate market in North America in property and casualty, it will require some coordination of how we work together and it will require continued investment as we had planned in that business. I don't see huge capital expenditures as a result. I think if we talk about the exchange opportunities, there will be some coordination, maybe some retooling and retraining of some of our people, but I don't think we see major investment requirements in the OneExchange platform over and above what you had already planned, John.
I think that's right, Dominic. I don't think we need large investments to achieve the revenue synergies we're talking about here. Of course, for both Willis and Towers Watson, we are both organizations that have been wanting to invest in innovation. I think one of the reasons as we talk to our people about why we're focusing on making sure that costs are at the lowest possible level, it's to make sure that we can continue to reward all of our stakeholders, both our shareholders and our people, and also continue to invest in innovation that's going to build the company of the future.
Thank you. Just a follow-up on when you're talking about revenue synergies. Are there aspects of the business where you feel there could be risk to lose revenue, but the opportunities to gain are far offsetting as that? Is that how you're thinking about it? Maybe you could just talk a little bit more about that, where you think potential risks might be and where some of the best opportunities are.
When I think about the Willis business going in to start with, I don't think we see any risks to our revenue base. We see lots of opportunities, as I've described, to augment what we do, to grow what we do, to add to what we do. We don't believe that any of our client bases or any of the product suite and service suite we have is going to come under threat because of this. Quite the opposite.
I think the one area people have asked earlier about our broker channel. As we've described, we believe that we still have quite a compelling value proposition for our broker channel. It still offers the same advantages if we do this transaction than if it didn't. Just to be prudent, we've thought about what would happen if we did have some attrition there, and we think this is still a compelling proposition.
Okay, great. Thank you very much.
Our next question comes from Cliff Gallant from Nomura. Your line is open.
Thank you. I guess, going to the topic a lot of people have mentioned in terms of revenues. What are the areas of overlap between the two companies that might cause revenue, I guess, dislocation?
I think as Dominic just said, we actually don't think that that's an issue generally. If you looked at it, we have four lines of business that we had on the organizational chart. Two of the lines of business are what I might call just pure moves from the predecessor company into the other. If you look at the exchange line of business, that's coming from Towers Watson, and that's going to be the same. If you look at the property and casualty line of business, that's coming from what Willis does there now, and that's not changing. The two areas where there's some overlap are the benefits and the human capital line of business, which includes the benefits and the talent and rewards. Not much overlap in the talent and rewards. Within the benefits, we offer a lot of the same services.
Not much overlap, though, in terms of the market segments that we tend to offer there. We don't think that's, in general, an issue. In the capital and risk and reinsurance area, that's a combination of some of the old risk and financial services segment from Towers Watson, and then it's a combination of the reinsurance brokerage business and the capital markets business from Willis. There is a little bit of overlap as to how some of those things work, but frankly, we see that as enhancing the ability of the analytical broker. We don't see any issues really around bringing those two together.
Okay. I actually had a couple of small, quick follow-up questions. One, is there a breakup fee? Two, can you clarify what shareholder approvals are needed? Do the Willis shareholders need to approve the combination? Three, are there any expected charges that'll be taken to achieve the expense synergies?
Actually I have a
Yeah
in reverse order. We've said that for the expense synergies, we are estimating one-time charges of 1.25 times the annual savings. Both sets of shareholders have to vote with a 50% vote for the transaction to go through. We will lay out in the merger filing, the proxy filing, the breakup fee arrangement.
Thank you.
Dom, maybe just one additional clarification. It is a 50% vote for a threshold for both sets of shareholders, but it's 50% of the outstanding shares for Towers Watson, and it's 50% of the shares actually voted for Willis.
Okay. Thank you.
Our next question comes from Paul Newsome from Deutsche Bank. Your line is open.
Hey, John. It's Paul Newsome. Just asking about the exchange business. I know that was sort of your number one growth avenue, and it seems like you're diluting that opportunity with this deal. I recognize that you're going to help penetrate the middle market with the Willis acquisition, but still, when it comes to the combined company, exchanges do get diluted. I'm just kind of wondering why you'd want to dilute your number one growth avenue. Thanks.
Yeah. I think, Paul, if we were actually to follow that logic to the extreme, of course, we would sell everything except for the exchange business, and we'd be a much smaller company, but maybe have a higher growth profile. We think that bringing these two businesses together creates a stronger, more comprehensive set of offerings. We think, actually, as I said, we think it doesn't just make the exchange a smaller part of a bigger business. We think it makes it a more powerful part of a bigger business.
Okay. John, you'd said earlier about that you wouldn't have done that math. Can you talk about what you think the value you receive for your shareholders? You'd mentioned the $125 you didn't think was the right math. Could you kind of talk us through the math you were thinking?
Yeah.
Thanks.
Well, I think maybe we can just take that offline instead of trying to go through all that here. I did mention how we got to the general thing. This was a market value-based deal that we struck based on the end-of-May results and the fact that things have moved a little bit since then. We always knew they could move one way or another, and so that doesn't particularly surprise us. Maybe we can take that offline and come to a calculation on that.
Thank you.
Our next question comes from Meyer Shields from KBW. Your line is open.
Great. Thanks. Good morning. Dominic, one quick question. I think overall the strategic rationale makes a lot of sense. Sorry. One area where I'm kind of concerned is in the planned penetration of the domestic large global corporate clients. We've seen, for example, Willis trying to penetrate that a decade ago when the incumbent broker was a lot more distressed than it is right now. I was hoping you could talk through what gives you confidence that that generally sticky market actually offers real opportunity.
Well, that's a very clear story. It's a story which is first independent of this transaction and then augmented by the merger with Towers Watson. The evidence is the following. We were in a similar position in the reinsurance market in North America a decade ago. We're able to show how, despite there were two very strong incumbents in that market, we have been able to grow our market share in the reinsurance market year after year in North America through the analytical and marketing approaches we have. We do have a significant large corporate P&C business in North America. It generates over $350 million of revenue already. We have an established platform there. We believe that all our offerings of the analytical broker, the industry approach we have, and our global track record enables us to build share. We are seeing traction already.
We put in place a new leadership team, hired some very significant people to help drive that. This is importantly, however, not a de novo start. As I said, it's a big business for us already in North America. We are just seeing quarter by quarter us building our position, winning very impressive names in the marketplace in RFP bids or as relationships roll over. I add to that story the Towers Watson capabilities, their relationships, their very broad relationships and deep relationships with that client base, and taking a very conservative view of how many of those could lead to attractive conversations with those clients about opportunities for us to serve them on the P&C side. We just see that as an accelerant of a story that is already underway. We have a big base already.
We're seeing progress by ourselves, and we think with Towers Watson's help, we will grow even faster.
Okay. Thank you very much.
Our next question comes from Kai Pan from Morgan Stanley. Your line is open.
Thank you and good morning. First question for Dominic. Dominic, Willis is actually on a multi-year operating improvement program targeting saving $300 million annually. I just wonder, your thought process why you're seeking a merger partner right now rather than waiting out a couple of years when you realize this synergy and get a better margin and probably valuation even better than now. As far as for the merger talks, it looks like it's a bilateral negotiation. I just wonder, have you guys engaged any third parties?
I'm sorry, what do you mean by third parties in the second part of your question?
Have you thought about looking out for other merger partners?
This is related to Willis? No.
Yeah.
Let me go through. We went through very carefully thinking about where we wanted to take the company, what our organic strategy was, we believe that Towers Watson is the best answer to accelerate that organic strategy, the strategy we had by ourselves. This is a very clear decision. As to the operational improvement program, why now? We think the market understands where that program is going. It has traction. We will be updating the market, as I say, later in July. We believe the market can see where this is going. We think it was an attractive part of the discussions with Towers Watson, the impact it could have on cash flow going forward. We were very comfortable in engaging these conversations at this point.
Are you open to any third parties in terms of the combination?
No.
Okay. The second question is about some of the potential closing issues. What's your thoughts on a potential antitrust issue and an IRS tax inversion rules? Can you give an update on the Stanford litigation from Willis' part? Thanks.
All right. Let me deal with Stanford first. We continue to think this is a baseless situation. We continue to fight it on all fronts and have great confidence in it. Obviously, we took Towers Watson through where we believe that case stands as part of due diligence. I think they're comfortable, and that's why we are where we are. That was one part of your question. I'm trying to think what the other two were.
Regulatory approval.
Regulatory approval. All right. The regulatory approvals, obviously, we are going to go through the normal regulatory processes. We've already alerted our key regulators as to the transaction, as you can imagine. At this point, we don't expect any regulatory issues, but one never knows. These are complementary businesses, largely, as we said. Not huge overlaps and huge market share changes in any particular business, really. Obviously, the regulators will do what they do, but we're not expecting any problems. Maybe Roger or John would like to talk about the tax situation.
Yeah. Roger, why don't I take this one?
Sure.
When we think about this transaction, we think about it as a merger of equals, and it's driven by business purpose. Not from a tax planning standpoint, but serving the customers. The advantage of the Irish domicile actually does create tax benefits, and we think the strategic rationale for the transaction stands forward, and the tax benefits that are derived just happen to be a nice consequence of the transaction. We don't see a lot of regulatory risk from a tax standpoint when we look at this deal.
Thank you so much, and good luck.
Thank you.
Our next question comes from Tim McHugh from William Blair. Your line is open.
Yes, thanks. Just want to ask, going back to the Liazon or middle market exchange business, I guess, how big was Willis as a customer base? I'm trying to understand how much Willis represented versus, I guess, the other channel partners. Help us understand just strategically, if Liazon already had a partnership with Willis, and Willis was already selling the kind of Liazon product, I guess, what changes with the transaction, I guess? I know obviously you could put a little more emphasis behind it, but is there anything more to it than that? I guess, what gets added?
I think three things. First of all, I don't have the numbers right off the top of my head. Willis was our largest channel partner. I think that probably gives you the sort of insight you're looking for there. Second of all, what changes when we do this? Willis goes from having the white label to being we're all part of the same organization selling this. I think when you're selling a product that is part of your same organization, I think you feel a greater ownership in it. I think you understand the value separately. I think we will probably have the opportunity to maybe offer some incentives to get those sales done in a different way than we were able to do in the past. I think those are some of the major things we'd be focused on.
I think from the Willis perspective, when we looked at this, we also agreed that while we are making good headway with what we call the Willis Advantage, which is our white labeled version of the Liazon offering. We do strongly believe, this is our view from the Willis side, that we can definitely accelerate that with the way we're going to approach this with the merger.
Okay. Thank you.
Thank you. At this time, I'd like to turn the conference back to management for any closing remarks.
Okay. First of all, thank you for taking the time to join us today. We look forward to keeping you updated on progress over the coming months and to speaking with many of you directly in the coming days.
Yes, absolutely. Thank you very much indeed. We will be informing you as we proceed.
That does conclude today's conference call. Thank you for your participation. You may now disconnect.