(Bloomberg) -- Willis Group Holdings Plc, the third-largestinsurance broker, agreed to merge with Towers Watson & Co. toadd consulting operations and help take on larger U.S. rivals.

Shareholders of the broker will own 50.1 percent of the combinedcompany, which will be domiciled in Ireland, lowering taxes forU.S.-based Towers Watson.

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Investors of the consulting company will get 2.649Willis shares and a one-time cashdividend of $4.87 for each share they own, the companies saidTuesday. Based on the broker’s closing price Monday, the dealvalues Towers Watson at about $8.7 billion.

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Marsh & McLennan Cos. and Aon Plc, the two largest brokers,also offer consulting services to tighten relationships withcommercial clients who are seeking to manage employee benefits aswell as buy insurance. Aon expanded in 2010 with the purchase ofHewitt LLC.

“The combined company will look and feel more like Aon or MMC,”Sean Dargan, an analyst at Macquarie Group Ltd., said in a note toinvestors. “Given past difficulties in such deals, we reiterate ourneutral rating” on London-based Willis.

Willis has been pursuing deals to extend its geographic reachand add customers seeking coverage for specialized risks. The firmin April offered to buy the 70 percent of French broker Gras SavoyeSAS that it didn’t already own, and in January agreed to purchaseMiller Insurance Services.

Growth opportunities

“This is all about accelerating the growth opportunities of thetwo companies,” Willis Chief Executive Officer Dominic Casserleysaid on a conference call. “We both felt we could succeed byourselves, but when we saw the two of us together we saw the upsidebeing significant.”

Upon completion, Willis Chairman James McCann will becomechairman of the combined group and Towers Watson CEO John Haley,65, becomes CEO. Casserley will be deputy CEO. The new board willconsist of six directors nominated by Willis and six by TowersWatson including the two CEOS.

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The deal values Towers Watson at about $125 a share, SarahDewitt, an analyst with JPMorgan Chase & Co., said on the call.That compares with Monday’s closing price of $137.98. Theconsulting firm slipped 2.4 percent $134.74 at 10:15 a.m. in NewYork trading, while Willis advanced 5.7 percent to $47.98. Thecombined company will have a market value of about $18 billion.

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Tax benefits

Haley said both firms had already been pushing toward becomingan advisory, brokerage and solutions company and the merger, firstdiscussed over dinner between the two CEOs, accelerates thatstrategy and lowers the execution risk.

The combined company’s tax rate will probably be in the “mid-20percent range” within two years, Casserley said on a conferencecall. That compares with Arlington, Virginia-based Towers Watson’scurrent rate of more than 30 percent, the consulting companysaid.

The deal is “driven by business purpose, not from a tax planningstandpoint,” Haley said. “The tax benefits that are derived justhappen to be a nice consequence of the transaction. We don’t see alot of regulatory risk from the tax standpoint when we look at thisdeal.”

As CEO, Haley will oversee about 39,000 employees in more than120 countries across the combined company, which had a pro formarevenue of about $8.2 billion last year. The deal will produce $100million to $125 million in cost savings within three years, thecompanies said.

Willis was advised by Perella Weinberg Partners, Weil Gotshal& Manges and Matheson, according to the statement. TowersWatson worked with Bank of America Corp. and Gibson Dunn &Crutcher.

--With assistance from Selina Wang in New York.

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