Shareholder lawsuits over Willis / Towers Watson merger could cost insurers $ 80 million

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Seven insurers who shared the risk of directors ‘and officers’ policies sold to Towers Watson could have to pay up to $ 80 million in settlements with shareholders who cried foul after learning that the brokerage’s merger with Willis included a payment of $ 165 to its general manager.

A federal judge in Alexandria, Va., Ruled Tuesday that a so-called “bounce” exclusion in policies does not prohibit coverage. He ordered partial summary judgment in favor of Towers Watson on this point.

Law firm Cohen Ziffer, which represented Towers Watson, called the decision a “major victory for policyholders” in a press release, but declined to comment further.

A mark-up provision, which is routinely included in D&O policies, excludes coverage of any payment that could be characterized as an increase in the purchase price of a business. US District Judge Anthony J. Trenga ruled that the exclusion did not apply to the settlement of shareholder lawsuits because Towers Watson merged with Willis; he did not acquire the company.

Trenga, along with the Eastern District of Virginia, noted in its order that Towers Watson canceled its common stock and issued new stock to Willis upon its merger with a subsidiary of Willis and its demise.

“In these circumstances, the merger was hardly comparable to the mere takeover of one company by another suggested by the exclusion of bump-up and is therefore reasonably considered to be something other than the” acquisition “referenced in the exclusion of bump-up, ”the ordinance said. said.

Trenga ordered the parties to notify the tribunal of all outstanding issues in the dispute within 14 days.

Towers Watson filed a D&O claim after two groups of shareholders filed separate lawsuits in Delaware and Virginia, claiming they were harmed by the company’s 2015 merger with Willis.

A class of plaintiffs led by University of California regents alleged in the 2018 lawsuit that Towers Watson violated Securities and Exchange Commission rules, among other things, by failing to disclose to shareholders or the board of directors that Willis had privately negotiated a compensation plan. with the CEO of Towers Watson, John Haley, who would pay him $ 165 million over three years.

The complaint states that Haley sold 55% of its shares in Towers Watson for approximately $ 14 million on March 2, 2015, before announcing the proposed merger. When the deal was announced on June 30, 2015, shares of Towers Watson fell 8.8%.

“After the issuance of the proxy, the backlash from investors and analysts continued as the market reiterated the view that Towers shareholders were not getting fair value for their shares,” the report said. trial.

The Delaware lawsuit alleges similar facts and accuses Haley and others involved in the case of “robbing” shareholders.

Lawyers for Towers Watson, which now exists as a subsidiary of Willis, agreed to settle with the Virginia plaintiffs for $ 75 million and with the Delaware plaintiffs for $ 15 million. He filed a D&O claim with the primary carrier, National Union Fire Insurance Co., asking for his tower of insurance’s $ 80 million coverage limit.

The insurers argued that the settlement agreement did increase the purchase price, so coverage was excluded by the mark-up provision. Judge Trenga disagreed.

The judge’s order says the merger of the two companies does not meet the dictionary definition of an acquisition. He also found the defendants’ argument that the transaction was structured as an acquisition to be baseless even though the two companies called it a merger.

He said Towers Watson shareholders received shares equivalent to 49.9% of the newly incorporated Willis. Trenga also pointed out that Delaware law recognizes a merger as a separate type of business combination.

About the photo: The Lloyds Building and Willis Towers Watson Building in London’s financial district are shown. Bigstock photo.

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