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Towers Watson debuts quietly

Asset consultant Towers Watson has debuted on Nasdaq and the NYSE with two quiet days trading in a very tight band around US$49, following Watson Wyatt’s $3.5 billion merger with rival Towers Perrin.

The stock, trading under the TW symbol on both the New York Stock Exchange and Nasdaq, debuted at $50 on Monday 5 January and closed the day up $2.24 at $49.76. Yesterday, after hitting $50 at 2pm, it closed at $49.27 on the NYSE and $49.28 on Nasdaq.

First-day volume at Nasdaq was 316,205 and the second day was quieter at 223,136 trades.

Towers Watson issued about 46.9 million shares of Class A common stock, and about 29.5 million shares of Class B (these will be subject to transfer restrictions and generally convert to Class A on a 1-for-1 basis over the next four years).

Towers Watson also paid $200 million in cash and issued one-year promissory notes in an aggregate principal amount of $200 million to some former Towers Perrin shareholders who resigned from Towers Watson.

Towers Watson projects savings of 2.5 per cent in revenue from the merger due to streamlining corporate office functions, for example finance and human resources. On the other hand, the full realisation of synergies is expected to take three years and cost about $80 million.

According to chief executive John Haley [formerly Watson Wyatt’s head, the merger will bring “broader, deeper, more comprehensive services to our clients”.

Demand for consulting slackened during the financial crisis, with Watson Wyatt’s revenue falling 25 per cent in the April-June quarter last year.

The Towers Watson marriage now creates the world’s largest employee-benefits consultancy by revenue, thus trumping the Mercer unit of Marsh & McLennan Cos, said Shlomo Rosenbaum, an analyst at Stifel, Nicolaus & Co.

Towers Watson projects sales of about $3.2 billion annually through 14,000 employees. Before the merger, Watson Wyatt was in second place, and Towers Perrin was fifth in the employee-benefits consulting rankings.

Watson Wyatt’s expertise has been in the superannuation-pension consulting arena while Towers Perrin dominated health care benefits. Watson Wyatt generated more revenue ex-USA than did Towers Perrin.

The marriage is expected to see revenues of 60 per cent from North America (with 55 per cent from the US itself), and 40 per cent from outside the US.

Watson Wyatt CEO John Haley took on the top job at Towers Watson, while Towers Perrin CEO Mark Mactas moves to become the new entity’s chief operating officer and deputy chairman.

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