Activists Are Still Fighting Tooth-and-Nail Against These Pending Mergers

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Driehaus Capital and Richard Driehaus have reiterated their belief that Willis Holdings Group plc (NYSE:WSH)’s offer for Towers Watson & Company (NYSE:TW) substantially undervalues the company, citing Towers Watson’s latest quarterly report. Driehaus Capital used the occasion to remind Towers Watson shareholders to vote against the deal unless Willis Holdings improves their offer. The fund holds 1.17 million shares or approximately 1.6% of Towers Watson’s outstanding stock.

Richard Driehaus

We follow hedge funds like Driehaus Capital because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 102%, outperforming the S&P 500 ETF by over 53 percentage points (see more details here).

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News of the deal between Willis Holdings Group plc (NYSE:WSH) and Towers Watson & Company (NYSE:TW) broke on July 1 and has sent the shares of the latter tumbling. Why? Because Willis’ offer was actually less than the value of an open market share at that time. They offered 2.649 shares of Willis Group and a one-time dividend of $4.87 per share in exchange for 50.1% of Towers Watson’s common stock, which, at that point, was worth 10% less than the market value of the control package. Driehaus Capital was furious with the terms and fired a letter off to the Board of Towers Watson pointing to similar deals involving 30% premiums as opposed to a 10% discount. Yesterday morning, Towers Watson posted its first quarter earnings for fiscal year 2016, which came in at $1.49 per share in earnings, surpassing analyst estimates of $1.34 per share. Revenues came in at $895 million, also beating estimates of $879 million. This has given Driehaus Capital more ammunition in its stance against the merger deal as it currently stands.

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At the end of the second quarter, top hedge funds held an insignificant 4.4% of Towers Watson & Company (NYSE:TW)’s common stock, valued at $379 million. Chuck Royce was among the 24 funds that reported stakes in the company at the end of June. His fund, Royce & Associates, held 786,371 shares, down by 30% during the second quarter. Clifford Fox, on the other hand, boosted his stake by 79% to amass 632,358 shares by the end of the second quarter.

On the following page we look at another activist who continues to fight against a separate merger deal.

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