4. Willis Towers Watson Public Limited Company (NASDAQ:WLTW)
Number of Hedge Fund Holders: 75
Dividend Yield as of January 9: 1.38%
The number of hedge funds tracked by Insider Monkey having stakes in a British-American insurance company, Willis Towers Watson Public Limited Company (NASDAQ:WLTW), grew to 75 in Q3 2021, from 70 in the previous quarter. These stakes are valued at over $5.05 billion.
On December 8, Willis Towers Watson Public Limited Company (NASDAQ:WLTW) announced a quarterly dividend of $0.80 per share, with a dividend yield of 1.38%. The company’s five-year dividend growth rate stands at 9.48%, with its dividend payout ratio of 23.3%. This December, Evercore ISI initiated its coverage on Willis Towers Watson Public Limited Company (NASDAQ:WLTW) with a $240 price target, citing the company’s organic growth and improving margins.
Farallon Capital made its first investment of over $10.4 million in Willis Towers Watson Public Limited Company (NASDAQ:WLTW) during the third quarter of 2020. In Q3 2021, the hedge fund held shares worth $319.1 million in the company, which accounted for 1.61% of the hedge fund’s portfolio.
Vltava Fund mentioned Willis Towers Watson Public Limited Company (NASDAQ:WLTW) in its Q3 2021 investor letter. Here is what the firm has to say:
“The second position is much larger and was thrown into our hands by an unexpected turn of events. It is the stock of Willis Towers Watson. This is a British company with roots dating back to 1828. WLTW is the third-largest insurance broker in the world. This is a sector with which we are very familiar, as some time ago we held in our portfolio shares of its slightly larger competitor AON.
It was AON in fact that announced last spring it had agreed to merge with WLTW. In the merger, WLTW shareholders would have received AON shares. As is usually the case with such announcements, investors stepped in to conduct what is known as merger arbitrage. In this particular case, they bought WLTW shares and sold short AON shares in order to profit from the fact that the prices of the two stocks did not yet fully reflect the exchange ratio in the merger. Moreover, merger arbitrage commonly makes extensive use of leverage in order to increase profits.
This summer, however, AON and WLTW jointly announced that they were pulling out of the planned merger because they had not received approval from the US Department of Justice. The regulator had feared that in an already quite concentrated industry, a merger of the second- and third-largest players would restrict competition too much. The immediate reaction to this announcement was, of course, closing of positions from the merger arbitrage. This brought an immediate increase in the price of AON shares and decline in the price of WLTW shares. We saw this as an excellent buying opportunity in WLTW stock. (In addition, WLTW had received a USD 1 billion breakup fee from AON.) Because we knew the industry and the two companies well from earlier years, we were able to react immediately, and a new, very attractive investment appeared in Vltava Fund’s portfolio rather unexpectedly and quickly.
Insurance brokerage is a very good business. Simply put, insurance brokers are intermediaries who sell, find, or negotiate insurance on behalf of a client for a fee. They do not bear the insurance risk themselves and thereby do not risk their own capital. They live from commissions and the fact that this is a large and recurring business. Just to give you a sense of this, I will note, for example, that of the 500 companies in the Fortune Global 500 list, more than 90% are clients of WLTW. The entire industry is very concentrated and has relatively high barriers to entry. WLTW is the third-largest global player, has very high free cash flow, low capital investment requirements, and a very valuable client base. The business as a whole also provides some long-term inflation protection, as the speed at which the volume of total premiums grows follows the speed at which the economy and asset prices grow in nominal terms. I have to say we are very happy that circumstances have passed this investment on to us.”
