Under the terms of the definitive agreement, Willis will acquire all of the outstanding shares of common stock of HRH for $46.00 per share, 50 percent cash and 50 percent stock, subject to the collar described below, in a transaction having an equity value of approximately $1.7 billion and an enterprise value of approximately $2.1 billion. The transaction is expected to close in the fourth quarter of 2008 and is subject to customary closing conditions, including regulatory and HRH shareholder approval.
The total purchase price of $2.1 billion represents a multiple of 2.4 times estimated 2008 HRH revenues and less than 10 times estimated 2008 EBITDA (defined as earnings before interest expense, income taxes, depreciation and amortization), including the assumption of an estimated $400 million of HRH debt. Annualized synergies are expected to amount to approximately $140 million by 2012. Over time, Willis plans to repurchase a majority of the shares issued in connection with the transaction under its previously approved $1 billion buyback plan.
Willis expects the acquisition to be accretive to cash earnings per share from the close and to GAAP earnings per share from year two.
Combining these complementary businesses will reportedly substantially improve Willis’s position in important areas in North America including California, Florida, Texas, Illinois, New York, Boston, New Jersey and Philadelphia, and in key business lines. In particular, it will more than double Willis’s North America revenues in Employee Benefits, an already strong area of expertise that Willis has targeted for further growth. In addition, it will further strengthen key practice areas including personal lines, real estate, health care, environmental, construction, complex property and executive risk.
The transaction will reportedly greatly strengthen Willis’s leadership as a middle market broker and reinforce its large account presence. It also will further expand the range of Willis’s specialty expertise and complement Willis’s substantial presence in the London market.
“This dynamic transaction is all about growth. It’s truly transformational for our North America business. Only HRH has the scale and fit in attractive growth areas to take our business to the next level,” said Joe Plumeri, chairman and CEO of Willis. “HRH’s complementary strengths and geographic footprint will help us accelerate the performance momentum we’ve achieved through our Shaping our Future strategy.
“HRH has some of the best brokers in the world and I’m proud to have the opportunity to partner with people of this caliber,” Plumeri continued. “We share the same passion for excellence and there’s no limit to what we can accomplish together. It’s really the best of both worlds for our clients. We bring global reach and expertise, while HRH brings added talent and local market presence. All this should translate into significant value for our shareholders.”
Martin Vaughan, III, chairman and CEO of HRH, said the combination has the full support of the Board of Directors and the senior management team at HRH. “Our complementary footprint and Willis’s strength in important Global Specialties such as aerospace, energy, construction, marine, financial institutions and executive risk make our two companies an outstanding strategic fit,” Vaughan said. “We are already developing detailed plans to make sure that the integration process is smooth and seamless for our clients. We see exciting opportunities for our talented Associates to enhance their careers in a truly global enterprise.”Willis estimates that the transaction will be 7 percent accretive to cash earnings per share in 2009, 10 percent in 2010 and 14 percent in 2011. It is expected to be 3 percent dilutive to GAAP earnings per share in 2009, 2 percent accretive in 2010 and 6 percent in 2011. It is the company’s intention to buy back over time the majority of the shares issued as part of the transaction.
Overall annualized cost savings and efficiencies are expected to amount to approximately $100 million pre-tax ($70 million after tax) – 50 percent realized in 2009 and 100 percent realized in 2010. Implementation of Shaping our Future initiatives is expected to drive further efficiencies of $40 million pre-tax annualized by 2012. Willis expects to incur approximately $75 million in one-time costs related to the transaction.
Consistent with the agreement that Willis reached last week with the New York State Attorney General and New York State Department of Insurance – and in keeping with Willis’s commitment not to accept contingent compensation – Willis will phase out HRH’s contingent commissions over three years.