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NEW YORK — Shares of Watson Wyatt Worldwide Inc. tumbled more than 7 percent in afternoon trading Monday after a Citi Investment Research analyst downgraded the stock to "Hold" from "Buy," citing short-term concerns about the management consulting firm's proposed combination with competitor Towers, Perrin, Forster & Crosby Inc.
The companies said Sunday that they will combine to form Towers Watson & Co. in an all-stock deal the companies value at $3.5 billion. The move will create a consultancy with 14,000 employees across more than two dozen countries. Watson Wyatt and Towers Perrin shareholders will each receive 50 percent of the combined company, which is expected to have annual revenue of more than $3 billion.
Citi analyst Ashwin Shirvaikar wrote Monday that the combination will eventually create a "global leader in HR consulting," yet could cause challenges in the near-term as the companies work to combine operations.
Integration and deal costs will likely lower Watson Wyatt's earnings per share and cash flow, he wrote, and could open up opportunities in the interim for competitors such as consultancies Hewitt Associates and Mercer.
The combination is expected to close shortly after a shareholder vote in the 2009 fourth quarter.
Shirvaikar lowered his target price to $46 from $47.
Shares of Watson Wyatt, based in Arlington, Va., fell $3.16, or 7.67 percent, to $38.04 in afternoon trading.
