IN RE TOWERS WATSON & CO. STOCKHOLDERS LITIGATION
Submitted: April 11, 2019
Michael J. Barry, Christine M. Mackintosh, GRANT &
EISENHOFER P.A., Wilmington, Delaware; Counsel for Plaintiff
Alaska Laborers-Employers Retirement Trust.
Michael J. Barry, Christine M. Mackintosh, GRANT &
EISENHOFER P.A., Wilmington, Delaware; Lee D. Rudy, Geoffrey
C. Jarvis, J. Daniel Albert, Stacey A. Greenspan, KESSLER
TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Counsel
for Plaintiff City of Fort Myers General Employees'
Bradley R. Aronstam, Roger S. Stronach, ROSS ARONSTAM &
MORITZ LLP, Wilmington, Delaware; John A. Neuwirth, Joshua S.
Amsel, Matthew S. Connors, Amanda K. Pooler, Sean Moloney,
WEIL, GOTSHAL & MANGES LLP, New York, New York; Counsel
for Defendants Victor F. Ganzi, John J. Haley, Leslie S.
Heisz, Brenda R. O'Neill, Linda D. Rabbitt, Gilbert T.
Ray, Paul Thomas, and Wilhelm Zeller.
Raymond J. DiCamillo, Sarah T. Andrade, RICHARDS, LAYTON
& FINGER, P.A., Wilmington, Delaware; Richard S. Horvath,
Jr., PAUL HASTINGS LLP, San Francisco, California; Counsel
for Defendants ValueAct Capital Management, L.P. and Jeffrey
stockholder class action challenges the $18 billion
merger-of-equals between Towers Watson & Co.
("Towers") and Willis Group Holdings plc
("Willis"). After the transaction was publicly
announced, multiple stockholders and analysts disparaged the
deal as a windfall for Willis. Unsure of whether the Towers
stockholders would approve the transaction, the Towers board
postponed the stockholder vote. Towers's CEO, who was
also Towers's lead negotiator, then renegotiated the
transaction, securing a dividend for Towers's
stockholders more than double the amount previously agreed
upon by the merging parties.
defendants have moved to dismiss this action. In briefing,
the defendants focused on arguing under the recently
fashionable Corwin doctrine that a fully informed
stockholder vote restored the business judgment
rule. But this decision need not reach
Corwin, as long-settled corporate law principles
warrant business judgment deference. Namely, the plaintiffs
do not argue that the merger, a mostly stock-for-stock
transaction between widely held, publicly traded entities, is
subject to enhanced scrutiny under
Revlon. Nor do they challenge any deal protection
devices to trigger enhanced scrutiny under
Unocal. The transaction thus is presumptively
subject to the business judgment rule, and the plaintiffs
must plead facts sufficient to rebut or overcome this
presumption in order to state a claim.
effort to rebut the presumption of the business judgment
rule, the plaintiffs rely on Cinerama, Inc. v.
Technicolor, Inc., arguing that Towers's CEO and
lead negotiator suffered a material conflict, which he failed
to disclose to the Towers board, and which a reasonable board
member would have regarded as significant in evaluating the
proposed transaction. The plaintiffs specifically point to a
compensation proposal made to the CEO by a holder of 10% of
Willis's stock after the initial deal was struck but
before the CEO secured a higher dividend. Under the allegedly
undisclosed proposal, the CEO would receive materially
greater upside in his compensation post-merger than he had
received pre-merger. The plaintiffs say that this proposal
misaligned the CEO's incentives at a critical juncture in
the negotiations, inspiring him to ask for no more of a
dividend than he believed necessary to secure Towers's
fact of the allegedly undisclosed compensation proposal fails
to rebut the business judgment rule. At bottom, the Towers
board knew that the CEO would become CEO of the combined
company post-merger, that the combined company would be much
larger, and that the CEO thus would be entitled to increased
compensation. Knowing this potential conflict, the board
nevertheless appointed the CEO as lead negotiator but kept
apprised of the negotiations. Further, the compensation
proposal was a proposal only; it reflected a theory of
compensation and upside potential in the event of
pie-in-the-sky outcomes unconnected to any business plan or
forecast. Given what the board already knew, and the nature
of the compensation proposal at issue, a reasonable board
member would not have regarded the proposal as significant
when evaluating the proposed transaction. The business
judgment rule therefore applies, and this decision grants the
defendants' motion to dismiss.
facts are drawn from the Verified First Amended Class Action
Complaint (the "Amended Complaint") and documents it
incorporates by reference.
The Original Merger Agreement
an Ireland corporation, was a publicly traded global
advisory, brokering, and solutions company. Willis's
second largest stockholder, ValueAct Capital Management, L.P.
("ValueAct"), held over 10% of Willis's shares.
ValueAct's founder and CEO, Jeffrey Ubben, sat on the
Willis board of directors. In late 2014, at Ubben's
recommendation, Willis began a review of strategic
alternatives that could provide enhanced scale for the
company. One such alternative included a merger with Towers,
a publicly traded professional services firm incorporated
under Delaware law, with a focus on helping organizations
improve performance through risk management, human resources,
and actuarial and investment consulting.
early 2015, the CEOs for Willis and Towers, Dominic Casserley
and John K. Haley respectively, met to discuss a business
combination. After meetings in January and February, the pair
agreed to explore a transaction and entered into a
non-disclosure agreement on March 29, 2015. Each company
retained financial advisors. For Towers, Haley engaged
Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill
period of only eleven days in May 2015, the Towers board
authorized a special committee to negotiate the Willis
transaction. On the tenth day, the special committee
met with Haley, who gave the special committee a detailed
summary of his conversations with Willis, addressing the
strategic rationale for and potential synergies from the
transaction. The committee directed Haley to present this
information to the full Towers board at a board meeting
scheduled for the following day. At that meeting, the
directors excused Haley from much of the merger-related
discussions and disbanded the special committee. The
committee neither evaluated the merger nor helped negotiate
spearheaded negotiations for Towers. The transaction
presented a potential "merger of equals," meaning
that neither company was "acquiring" the other. The
nature of the transaction required negotiating several issues
beyond price, including who would lead the combined company,
how to structure the transaction, and whether one company was
entitled to a premium over its public trading price.
of the combined company was decided first. Before the special
committee was disbanded, the committee discussed the combined
companies' leadership, and independent director Rabbitt
was tasked with recommending to Willis's Board Chairman
James McCann that Haley run the combined entity. Rabbitt
reached out to McCann that same day. McCann then discussed
the proposal with Casserley, and Casserley accepted the
proposal on May 19, 2015.
this leadership determination, the Towers board authorized
Haley to continue to lead the merger negotiations for Towers.
During the discussions held in early 2015, Haley had kept
Rabbitt informed. After the parties agreed to name Haley CEO,
on two instances, Towers independent director Ganzi joined
Haley for negotiations,  and Haley continued to update the
Towers board on negotiations.
May 2015 negotiations, Haley suggested that the structure of
the merger should be based on the companies' respective
market capitalization. Willis responded that the pro forma
ownership of the combined company should be based on the
relative contribution of several different financial metrics;
this resulted in Willis stockholders owning a larger
percentage of the combined company. Haley and Casserley also
discussed the potential form of consideration, along with
other merger terms including a pre-merger cash dividend for
Towers's stockholders, the exchange ratio, post-merger
board composition, and the resulting ownership of the
combined company by Towers and Willis stockholders,
1, 2015, Haley and Ganzi proposed the following transaction:
Willis would pay a $500 million dividend to Towers's
stockholders, Willis's stockholders would own
approximately 51% of the combined company, and Towers's
stockholders would own the remaining 49%.
Ubben was dissatisfied with Towers's proposal and the
progress of negotiations. By email, Ubben demanded that
Willis press Towers harder and "use ValueAct in this
negotiation" by telling Towers that (1) ValueAct would
not approve the merger without a reasonable premium; (2)
there was no merger without ValueAct's support; and (3)
ValueAct must meet Haley. If the negotiators failed to
follow these demands, Ubben threatened to break up and sell
later, on June 5, 2015, Willis counteroffered with terms that
did not include a dividend. The counteroffer provided that
Willis's stockholders would own approximately 50.1% of
the combined company while Towers's stockholders would
own the remaining 49.9%.
response, on June 7, 2015, Haley and Ganzi proposed a $337
million dividend (about $4.87/share) to Towers's
stockholders and adopted Willis's June 5 proposal on
stockholder ownership structure, with Willis's
stockholders owning the majority. Casserley agreed in
principle to the counteroffer on June 10, 2015. The parties
then engaged in diligence.
parties conducted diligence, the Towers board met multiple
times with their advisors and Towers management to discuss
the status of the transaction, requesting detailed follow-up
on synergies, which management provided at subsequent
27, 2015, Towers and Willis agreed in principle, subject to
their respective boards' approval. The terms mirrored
those reached by Haley and Casserley just weeks earlier. That
same day, the Towers board convened to review the
transaction. The board members discussed the transaction
terms, due diligence, potential synergies, and their legal
obligations as directors. Over the next few days,
Towers's outside counsel fielded additional questions
from the Towers board.
condition to entering into the merger agreement, Towers
required that ValueAct enter into a voting agreement in
support of the merger. Willis consulted with ValueAct and
Ubben to ensure that ValueAct supported the merger and was
willing to enter into the voting agreement. Representatives
of ValueAct, including Ubben, discussed the proposed merger
internally and with Willis. They also offered to meet with
Haley and other Towers representatives.
Towers board met on June 29, 2015, to review Merrill
Lynch's financial analyses. Merrill Lynch rendered an
oral fairness opinion and later confirmed its opinion in
writing. The Towers board unanimously approved the terms
outlined in the merger agreement, which the parties executed
later that day.
the merger agreement, Towers's stockholders would receive
a dividend of $4.87/share and following the closing of the
merger, own approximately 49.9% of the combined company.
Based on the trading price of Willis shares, Haley's
counteroffer valued each share of Towers stock at $125.13, or
a 9% discount to the $137.98 closing price of Towers stock on
June 28, 2015.
Reactions to the Initial Merger Agreement
and Willis announced the merger on June 30, 2015.
Towers's stockholders reacted negatively to the
announcement. In the months before the merger, Willis's
financial condition had worsened, and Towers's financial
condition had strengthened. Regarding the merger, analysts
noted that Willis "appears to be extracting more value
from the transaction than" Towers. By the close
of trading on the day the merger was announced, Towers's
stock price had dropped 9%.
reactions continued into September 2015. Willis's
financial woes exacerbated the issue. Willis missed earnings
in July. In contrast, Towers reported in August earnings that
beat street expectations and set a record-breaking fiscal
year. Analysts remarked, and the plaintiffs allege, that the
market reaction imperiled the deal by decreasing the
likelihood that Towers would obtain the majority stockholder
approval necessary to close.
The Compensation Proposal
early September 2015, ValueAct's Ubben presented Haley
with a three-page document entitled "Towers 
Compensation Review September 2015." The
presentation showed Haley's long-term incentive
compensation under three scenarios: (1) Haley's
then-current plan at Towers, worth around $24 million; (2)
Haley's then-current plan applied at the combined entity,
worth around $48 million; and (3) ValueAct's
incentive-based compensation proposal reflecting
ValueAct's compensation philosophy.
compensation philosophy aimed to tie Haley's compensation
to comparable peer performance. Haley would earn below
executives of peer companies for below average or average
performance, and above executives of peer companies for
outperformance, defined to mean an annualized 30% internal
rate of return or higher.
did not inform the Towers board of ValueAct's
compensation proposal, according to the plaintiffs. But the
plaintiffs do not allege that Haley remained silent or
engaged in negotiations with ValueAct. The plaintiffs allege
that Haley told ValueAct to discuss the proposal with Gene
Wickes, Towers's managing director of benefits.
October 13, 2015, Towers and Willis jointly filed a proxy
soliciting votes in favor of the merger (the
"Proxy"). About two weeks later, Haley and
ValueAct presented to Institutional Shareholder Services
("ISS") regarding the merger. They also worked
together to solicit support for the merger from Towers's
largest stockholders, including The Vanguard Group and
stockholder launched a public campaign against the
transaction in mid-September. Driehaus Capital Management
("Driehaus") sent an opposition letter to
stockholders (also filed with the SEC) noting that Haley was
likely in line for a pay raise commensurate with the
increased size of the post-merger entity. Over the next two
months, Driehaus filed five additional opposition letters
against the merger. One of Driehaus's letters pointedly
asked whether Towers "management ha[s] 'skin in the
game?' Are incentives aligned?"
publicly responded to Driehaus on November 3, 2015, filing an
investor presentation with the SEC that sought to "set
the record straight" and that touted Towers's
existing compensation practices. It did not refer to
ValueAct's compensation proposal.
emailed his response to Towers six days later, asking about
Haley and ValueAct's communications, including whether
they had discussed Haley's post-merger compensation.
Driehaus explained: "[S]hareholders are concerned that
[Haley's] relationship with [ValueAct] has impaired-and,
more importantly, continues to impair-Mr. Haley's ability
to negotiate in good faith on behalf of Towers . . .
replied to Driehaus's email, copying Ubben: "[T]here
have been various discussions between [Towers]
representatives and members of the Willis board, as well as
large shareholders, including ValueAct, all of which were
appropriate." In November 2015, ISS recommended that
Towers stockholders reject the merger.
light of the negative market reaction, Towers determined to
propose new terms to Willis. On November 10, 2015, Haley
proposed increasing the special dividend to $10.00 per share.
Willis rejected Haley's proposal and instructed Haley to
focus on soliciting Towers stockholders rather than
renegotiating the merger consideration.
special meeting held on November 17, 2019, the Towers board
voted to adjourn the stockholder meeting scheduled for
November 18, 2015, and determined to renew the $10.00 per
share dividend demand. Haley had consulted with Ubben prior
to the meeting. According to handwritten notes of the
November 17, 2015 Towers board meeting, Haley recounted his
conversation with Ubben to the Towers board, and further told
the board that the $10.00 amount "[d]idn't trouble
the November 17, 2015 Towers board meeting, Haley renewed the
proposal to Willis for a $10.00 per share special dividend.
In this meeting, Haley allegedly informed Casserley that the
$10.00 per share dividend would be the minimum increase
necessary to get the deal done. This time, the Willis board
accepted the proposal. By the close of business on November
18, 2015, Haley and Willis had agreed upon the renegotiated
terms, and Haley updated the board at another special
after the parties reached the renegotiated terms, on November
19, 2015, the Towers board convened the third special meeting
of November. Merrill Lynch rendered an oral opinion, later
confirmed in writing, that the renegotiated terms were fair,
from a financial point of view, to Towers's stockholders.
The Towers board then unanimously voted to approve attendant
amendments to the merger agreement, and publicly announced
the changes the next day. Towers then filed a supplemental
proxy on November 27, 2015.
stockholder vote held on December 11, 2015, 62% of the Towers
stockholders voted in favor of the merger. The merger closed
on January 4, 2016, to form Willis Towers plc ("Willis
Haley's Compensation Agreement
after the stockholder vote, Willis's compensation
committee chair Wendy Lane contacted ValueAct "to catch
up on the conversations" between Ubben and Haley over
compensation. ValueAct sent Lane the
"analysis" of slides from Ubben's pitch to
Haley stating that ValueAct would
"tweak" the compensation proposal to make it more
in depth before sharing it with Haley and the Willis Towers
Ubben sat on Willis Towers's board and compensation
committee, and Lane chaired the Willis Towers's
compensation committee. The compensation committee engaged