Watson Wyatt Merges with Towers Perrin

Watson Wyatt Worldwide Inc. (WW) has agreed to merge with Towers, Perrin, Forster & Crosby, Inc. in a $3.5 billion all-stock deal, announced Sunday.

The merged company, christened Towers Watson & Co., will have annual revenue of more than $3 billion and is expected to generate about $80 million in pretax annual synergies.

As per the deal, Watson Wyatt shareholders will receive 50% of the combined entity's shares, while the rest will be issued to Towers Perrin shareholders on a restricted basis.

The release also states that full realization of synergies will take 3 years and will cost approximately $80 million.

Meanwhile, analysts have expressed concerns over the deal as integration-related expenses could affect both earnings and cash flow of the combined entity in the near-term.

Last month, Watson Wyatt slashed its earnings guidance to between $3.35 and $3.40 per share for the fiscal year ending June 2009, against the earlier outlook of $3.50 to $3.57 per share.

Analysts currently expect the company to post earnings of $3.38 per share, which has moved down by 16 cents, or 4.5%, over the past 2 months.

WW, a Zacks #4 Rank ("Sell") stock, slipped more than 7% today on heavier-than-usual volume of approximately 1.7 million, compared to the average daily volume of about 432,000.

Read the full analyst report on WW