The surprise proposed merger between Towers Watson and Willis Group announced last week has pushed the consulting firm to the top of the betting to win the auction for Russell Investments, which is reputedly down to a short list of three: Towers Watson and two Chinese firms – financial services conglomerate Citic and the unlikely Shanda Games.
The US$18 billion merger, which won’t close until December this year, will increase available cash in the combined business to about US$2 billion, which is thought to be ample to acquire Russell Investments without increasing debt or issuing shares.
According to a Reuters report issued after the deadline for bids for Russell Investments passed last month, private equity hopefuls had pulled out of the bidding, with the asking price for Russell Investments rumoured to be about US$1.5 billion.
The remaining bidders were Towers Watson, the Chinese Government-owned Citic and online games developer Shanda, which reportedly is interested in entering the financial services industry, according to Reuters.
Other Chinese technology companies have either entered or expressed interest in entering financial services to assist their payments processes and provide lending and other services to customers. Online banking, investment and financial services are growing rapidly in China, albeit from a low base.
(We’re wondering what Frank Russell, who founded the Russell group as a broking and advisory firm in Tacoma, Washinton, in 1936, would think of Russell Investments being owned by a Chinese games maker.)
Meanwhile, the Towers Watson/Willis merger, which has been approved unanimously by both boards and has the support of Willis’s 10.3 per cent shareholder ValueAct Capital, will produce a global advisory, broking and solutions provider with annual revenue of $8.2 billion and EBITDA of $1.7 billion, based on 2014 figures.
Willis, which celebrated 50 years in business in NZ this year, “currently employs over 400 people, with nine offices throughout New Zealand and Australia”, according to the group’s website.
Meanwhile, Towers Watson is represented in NZ by its affiliate partner, Melville Jessup Weaver.
The merger is unlikely to impact adversely on any services currently being offered by either company. Cost synergies of only $100-125 million are envisaged over three years from eliminating duplicated corporate overheads and other efficiencies.
* Greg Bright is publisher of Investor Strategy News (Australia)