Goldman Sachs Upgrades Willis Group On 'Optionality'

In a report published Thursday, Goldman Sachs analyst Michael Nannizzi upgraded the rating on

from Sell to Neutral, while raising the price target from $45 to $49. Willis announced its intention to merge with advisory services and solutions provider

in an $18 billion all-stock transaction. As per the terms of the agreement, Towers Watson shares will be converted into 2.6490 shares of Willis, and Towers Watson shareholders will receive a onetime $4.87 cash dividend per share prior to closing. Willis shareholders will own 50.1 percent of the combined entity. The deal is expected to be completed by the end of this year, with the combined entity expecting synergy savings of $100-$125mn within 3 years and a consolidated tax rate in the mid-20s. "In our view, this transaction demonstrates that WSH management is willing to explore strategic alternatives that address our primary concerns with the company, namely elevated financial leverage combined with a lack of free cash flow generation," analyst Michael Nannizzi mentioned. In the report Goldman Sachs noted, "…transactions like this one could allow WSH to reduce its financial leverage to be more in-line with peers, thereby removing a major overhang to the stock, in our view."