Moody's says broker's financial position will be "significantly weakened".

Moody's Investors Service has placed the ratings of Willis and its subsidiaries under review for possible downgrade.

This rating action follows the announcement that Willis plans to acquire Hilb Rogal & Hobbs Company (HRH) in a transaction that values HRH's equity at $1.7bn and the total HRH enterprise at $2.1bn.

The transaction, which is subject to customary regulatory approvals and an HRH shareholder vote, is expected to close in the fourth quarter of 2008.

Moody's said that its rating review will focus on the strategic rationale for the transaction, the integration plans, the funding mix and the company's expected level of share repurchases.

"The transaction will enhance Willis's business profile, particularly in the US market," said Moody's Bruce Ballentine, lead analyst for Willis, "but we expect that it will significantly weaken the firm's financial profile for a couple of years - perhaps longer depending on the pace of integration, cost savings, debt reduction and general market conditions."

Consideration for the HRH stock will consist of 50% cash and 50% Willis stock, subject to a collar on the value of the Willis shares.

Willis intends to repurchase a majority of the shares issued in connection with the transaction over the ensuing 12-18 months. In order to fund the cash portion of the acquisition, refinance the HRH debt and cover transaction costs, Willis has arranged for senior credit facilities and a bridge financing, with the bridge financing intended to be replaced by senior unsecured notes.

The initial funding and share repurchase plans seem aggressive, according to the rating agency. All financial leverage and coverage metrics would be noticeably weaker following the acquisition.

Moody's said that the acquisition will probably constrain Willis's profitability in the near term as a result of transaction and integration costs. Also, as with any sizable merger, the integration process could lead to producer defections and/or a dip in productivity among producers whose roles might change.

Over time, however, Moody's expects that Willis will improve margins by streamlining information systems and support functions among the HRH offices, and by consolidating duplicate offices in some US markets.

Willis estimates it will derive $140m in annual synergies from the deal by 2012.