Watson Wyatt Teams Up With Towers Perrin

Merger Would Create World's Largest Human-Resources Consulting Firm

Rivals Watson Wyatt Worldwide of Arlington and Towers, Perrin, Forster & Crosby of Stamford, Conn., have agreed to merge to create the biggest human-resources consulting firm in the world.

The new, publicly traded company will be called Towers Watson & Co., and is expected to generate more than $3 billion in revenues and employ 14,000 people, the companies said in a joint statement.

Watson Wyatt chief executive John Haley will be chief executive of the combined firm. Towers Perrin chief executive Mark Mactas will serve as president.

A spokesman for publicly held Watson Wyatt said yesterday that the headquarters location had not yet been decided. Towers Perrin is a private company whose shares are held by its employees.

The companies expect the deal to close in the fourth quarter upon the approval of shareholders and completion of regulatory reviews. It is unclear how local employees of the two companies will be affected.

The merger is an all-stock transaction, and shareholders of each firm will own half of the new company. The merger could save them $80 million in pretax costs over the next three years, according to a news release.

The companies handle many of the complex, administrative duties for big corporations, such as processing pension asset and liability calculations, overseeing health claims and helping select investment advisers. However, the pension business has been static, though the combined company might be able to find growth in other sectors.

Citing a business slowdown during the economic downturn, Watson Wyatt recently lowered its financial forecast for the fiscal year ended today.

"If you are in pension benefits consulting, you want other products in your arsenal for the longer term," said Shlomo H. Rosenbaum, an analyst at Stifel Nicolaus. "One motivation for pursuing this deal is that the longer-term trends for pension-benefit consulting are negative. Companies are not starting new pensions, and those companies with existing pensions are looking to freeze them."

The companies said the new firm would be a more powerful rival to its competitors because it would expand its global footprint and offer additional services.

"The combination will further strengthen our core service lines while offering our clients an enhanced portfolio of proven offerings across a range of financial, risk and people management areas," Haley said in a statement.

Stifel Nicolaus said in an analyst's note yesterday that the merger would create near-term disruption that could help competitors. Citigroup downgraded Watson yesterday from buy to hold.

"Longer term, we expect the combined entity to be a more formidable competitor in larger [human resource] consulting space," the Stifel Nicolaus note said.

"The key questions that need to be answered about the deal . . . are in what ways will the combined company be stronger than the two individual companies, and will the growth profile of the combined business be better than for each individual company," Stifel Nicolaus said.

Founded in 1946, Watson Wyatt has 7,000 employees in 32 countries. About 60 percent of its revenue comes from retirement consulting, and the rest from areas such as compensation consulting and benefits outsourcing. The company went public in 2001. Towers Perrin has 6,300 employees in 26 countries.

Watson Wyatt shares closed down $3.18 to $38 yesterday, down 7.7 percent.