$18bn merger sees Willis Group and Towers Watson become one

BY Fraser Tennant

Willis Group Holdings and Tower Watson have announced that they are to merge in an $18bn transaction that will create a major integrated global advisory, broking and solutions provider.

The signing of a definitive merger agreement between the pair - two highly complementary businesses combining in an all-stock merger of equals transaction – will, they say, "create an integrated global platform to drive long-term growth and market share gain in traditional and new businesses".

Upon completion of the merger, Willis shareholders will own approximately 50.1 percent and Towers Watson shareholders will own approximately 49.9 percent of the combined company on a fully diluted basis. The combined company will be named Willis Towers Watson.

The combination is also expected to result in a $100-125m cost saving within three years of closing – due mainly to increased efficiencies and the elimination of duplicate corporate costs and economies.

“These are two companies with world-class brands and shared values," said Dominic Casserley, CEO of Willis. “The rationale for the merger is powerful – at one stroke, the combination fast-tracks each company’s growth strategy and offers a truly compelling value proposition to our clients. Together we will help our clients achieve superior performance through effective risk, people and financial management. We will advise over 80 percent of the world’s top-1000 companies, as well as having a significant presence with mid-market and smaller employers around the world.”

Unanimously approved by both the board of directors of both companies, the combined entity will have approximately 39,000 employees in over 120 countries. 

“Our organisations share a client-first mentality and a focus on providing services and solutions that consistently exceed clients’ expectations," said John Haley, chairman and chief executive of Towers Watson. “As we bring these two companies together, we are confident associates across both organisations will enjoy increased development opportunities as part of a stronger and more global growth company.”

In terms of the leadership structure of Willis Towers Watson, James McCann (previously non-executive chairman of the Willis board) will become chairman; John Haley will be chief executive and Dominic Casserley will be president and deputy CEO. The board will consist of 12 directors in total: six nominated by Willis and six by Towers Watson.

Mr Casserley said: “We look forward to bringing Towers Watson’s innovative solutions to our clients alongside our broking and advisory services. The opportunity to deliver significant savings to our growing middle market client base with Towers Watson’s market-leading private exchange platform is particularly attractive.”

News: Willis Group and Towers Watson merge in $18bn deal

Global alt assets to reach $15.3 trillion

BY Richard Summerfield

Global alternative assets are set to increase to $15.3 trillion by 2020, according to a new report from PwC.

This growth in alternative assets will likely be driven by a period of transformation in the global alternative asset management industry as parties active in the space recalibrate their business and operations and make technology a top investment priority.

The report, 'Alternative Asset Management in 2020: Fast Forward to Centre Stage', notes that though the predicted level of growth in the alternative assets space is expected to be achieved over the next five years, that growth is dependent on a number of factors. Primarily, it relies on the continued growth of global monetary policy and the stable development of global GDPs. However, the report notes that growth could drop to $13.6 trillion if interest rates in Europe and the US rise and capital markets undergo corrections.

Much of the expected growth in alternative assets is expected to come away from the traditional developed global markets. Indeed, South America, Africa and the Middle East are expected to be hotbeds over the next five years. "The shift in global economic power from developed to developing regions will drive continued focus on sovereign investors, fast-growing institutions and the emerging middle classes in new markets," said Mike Greenstein, global alternative asset management leader at PwC. "These groups of investors will increasingly seek branded multi-capability alternative investment firms. Currently, a number of alternative firms exist in this category and others will aspire to join them."

Growth in emerging markets is likely to be driven by key trends. The first is a government-incentivised shift to individual retirement plans. Generally speaking, the global population is rapidly ageing. With global pension fund assets expected to reached $56.6 trillion by 2020, alternative assets should play a larger role in allocations. Other growth trends include a marked increase in the number of high-net-worth-individuals from emerging populations and the growth of sovereign investors.

Report: Global alternative assets predicted to reach $15.3 trillion in 2020

A Greek tragedy?

BY Richard Summerfield

It would appear that after much debate – and many billions of euros – the Greek debt crisis may finally be entering the end game.

On Tuesday 30 June, the International Monetary Fund (IMF) confirmed that Greece had failed to make its latest €1.5bn debt repayment, officially placing the country ‘in arrears’. Greece’s missed payment is the largest in the IMF's history and the country becomes the first ever ‘advanced economy’ to be placed in arrears. The ‘default’ by Greece also brings about the end of the country’s second bailout programme.

In a last gasp attempt to prevent default, the Greek government proposed a new two year bailout programme which would be supplied under the European Stability Mechanism, which provides Europe’s bailout fund. The proposal was made shortly before the IMF’s payment deadline.

In a letter sent to the European Commission, IMF and European Central Bank, incumbent Greek prime minister Alex Tspiras asked for a new loan of €29.1bn to cover debt maturing in 2017.

In order to secure the fund, Mr Tspiras claimed that he would accept all of the conditions put forward by the country’s creditors provided there were a few minor amendments. The Greek government is seeking, in terms of the country's value-added tax system, a special 30 percent discount for Greek islands, many of which are in remote and difficult-to-supply regions, be maintained. With regard to pension reforms, Mr Tsipras asked that changes to move the retirement age to 67 by 2022 begin in October, rather than immediately. He has also requested a special ‘solidarity grant’ be awarded to the country’s poorer pensioners. This grant, Mr Tspiras notes, would be phased out by December 2019. “Our amendments are concrete and they fully respect the robustness and the credibility of the design of the overall programme,” said Mr Tsipras.

At the time of writing the approval of this third bailout seems highly unlikely. Many senior European figures, particularly those in Germany, appear unwilling to deal with Mr Tspiras and his finance minister Yanis Varoufakis. Mr Tspiras’ decision to call a referendum for Sunday 5 July, in which the country will decide whether it wants to accept creditors' bailout conditions, has proven to be a contentious one. German chancellor Angela Merkel noted that “the door to talks with the Greek government has always been, and remains, open", adding, however, that talks could not take place before Sunday’s poll.

With fierce criticism of the referendum ringing around Europe, a no vote appearing most likely, and a €3.5bn payment to the ECB due on 20 July, Greece’s time in the euro may be drawing to a close.

News: Greece debt crisis: IMF payment missed as bailout expires

Lone Star to acquire Home Properties in $7.6bn deal

BY Fraser Tennant

In a transaction valued in the region of $7.6bn, global private equity firm Lone Star Funds has announced its intention to enter into a definitive agreement to acquire Home Properties, Inc., the publicly traded multifamily real estate investment trust. 

Under the terms of the agreement, Lone Star Funds will acquire all of the outstanding common stock of Home Properties for $75.23 per share in an all-cash transaction. The agreement, which includes the assumption of existing debt, will, upon completion, see Home Properties become a privately held company.

“We are pleased to enter into an agreement to acquire Home Properties and look forward to working with their talented team to complete this transaction and integrate the Company's portfolio into Lone Star Funds' existing multifamily portfolio," said a delighted Hugh J. Ward III, co-head of real estate investments at Lone Star Funds.

“This is Lone Star Funds' second large, recent apartment purchase following the 2014 acquisition of a 64 property, 20,439 unit portfolio, and is consistent with our strategy of buying primarily Class B apartments, including workforce housing, located in in-fill markets with strong underlying fundamentals."

The Lone Star Funds/Home Properties definitive agreement does, however, contain a ‘go shop’ provision which allows the latter firm to solicit alternative proposals from third parties for 30 days from 22 June, the date of the announcement.

"The Home Properties team has built a great company, as reflected by our strong platform, unique assets, and differentiated business strategy," said Edward J. Pettinella, President and Chief Executive Officer of Home Properties. "We believe this transaction with Lone Star Funds provides our stockholders with compelling value for their investment, consistent with our long-term strategy."

Concurrent with the Lone Star Funds, Home Properties has also entered into an agreement to contribute a portfolio of up to six portfolios, totalling 3246 units, to UDR, Inc, a $13bn multifamily real estate investment trust, in exchange for cash and newly issued units.

But a potential threat to the dealmaking extravaganza has arisen in the past few days with the revelation that national securities firm Faruqi & Faruqi, LLP is investigating the board of directors of Home Properties over potential breaches of fiduciary duties in connection with the sale to Lone Star Funds.

However, for the present, the Lone Star Funds/Home Properties transaction is still expected to close in the fourth quarter of 2015.

News: Lone Star Funds to buy Home Properties for $7.6 billion, including debt

A ‘climate of fear’ breeds unethical behaviour within financial institutions claims new research

BY Fraser Tennant

New research into the reasons why employees of financial institutions can become partial to unethical conduct has been published this week by PwC and the London Business School.

The research study, ‘Stand out for the right reasons: why you can’t scare bankers into doing the right thing’, was designed to investigate the role of emotions in determining when and why employees behave creatively as opposed to unethically when competing with colleagues.

The study is based on a survey of 2431 managers from UK financial services representing banking, insurance and wealth management.

The PwC/London Business School research reveals that when financial institutions take a ‘get tough’ approach to poor employee performance in terms of behaviour and reaching targets, they risk creating a climate of fear and breeding more unethical conduct in financial services – an outcome at odds with what regulators, businesses and the public actually want.

“We are not suggesting that rules and penalties for bad behaviour should be abandoned as it’s essential that people know what is acceptable and what isn’t, and criminal behaviour should be punished," said Duncan Wardley, people and change director and behavioural science specialist at PwC. “This is about the sorts of pressures that push ordinary, well-meaning people into behaving less ethically that they would want to by cutting corners and hiding mistakes.

As a counterpoint to this, the research also found that when managers were presented with situations where the positive outcomes of success were highlighted rather than the negative consequences or punishment for poor performance, they were more excited and much more likely to demonstrate innovative behaviour.

Mr Wardley continued: “Regulators and financial services leaders can change behaviour within companies by increasing emphasis on the positive outcomes of good performance, instead of solely focusing on the negative outcomes of the bad behaviour they want to stamp out.”

Additionally, whilst the study shows that the issue of monetary reward is still a contentious issue involving a public and regulatory desire for further sanction, it also recognises that too much pay regulation can ultimately be self-defeating.

“Tough medicine prescribed by regulators to curb conduct issues meets the public appetite for retribution," believes Tom Gosling, head of pay, performance and reward at PwC. “But pay regulation based purely on pay structures and penalties can unintentionally create the very conditions that make unethical behaviour more likely.

"An approach to pay regulation that focuses too much on pay instruments, deferral, and clawback can create the emotional states in which creativity is crowded out, focus on financial rewards is maximised and unethical behaviour is more likely.”

Report: Stand out for the right reasons - why you can’t scare bankers into doing the right thing