(WATSON, WYATT, COULD, HEWITT, INTEGRATION, EARNINGS, MERGER)
NEW YORK (Reuters) - Shares of consulting company Watson Wyatt Worldwide (WW.N) tumbled 8 percent on Monday as analysts cited concerns about its $3.5 billion merger with Towers Perrin Forster & Crosby.
The deal, announced late Sunday, will create the biggest human resources consultancy in the world, according to analysts at Stifel Nicolaus.
It will be a more powerful rival to businesses such as Hewitt Associates (HEW.N) and Mercer, a subsidiary of Marsh & McLennan Companies (MMC.N), during a time when clients have curbed discretionary spending.
The deal will take three years for Tower Perrin to add to Watson Wyatt`s earnings on a GAAP basis, and two years on an adjusted earnings per-share basis, Roger Millay, Watson Wyatt`s chief financial officer said on a conference call.
A three-year path to become accretive could imply a difficult integration, while there could be a net exodus of talent, said an analyst at Citigroup in a research note.
Integration and deal costs are likely to lower earnings per share and cash flow, thereby making the valuation less interesting, Citi said, while the integration could also offer its rivals some competitive opportunities in the interim. Citi lowered its price target on the deal by a dollar to $46 a share.
Watson Wyatt`s shares slid 8 percent to $37.95 in early trading.
Stifel Nicolaus also said that near term disruption from the merger might help competitors, although it said that longer term, "we expect the combined entity to be a more formidable competitor".
The pair don`t expect regulatory issues with combining the two firms, one executive said on the conference call on Monday.
Citi`s analyst said that the deal could give Hewitt the opportunity to either pick up assets that may need to be sold for anticompetitive reasons or because talent is dissatisfied with elements of the merger.
"We would look for a net exodus of talent and relationships from Towers Watson to others in the industry like Hewitt and Mercer," Citi said.
Original article
No comments:
Post a Comment