LONDON (Bloomberg) — Willis Group Holdings Ltd., the world's third-largest insurance broker, plans to buy Hilb Rogal & Hobbs Co. of the US for $1.7 billion to take on its two biggest rivals in their home market.

Willis valued the deal at $2.1 billion, including $46 a share in cash and stock, plus $400 million in debt, the London-based company said in a statement yesterday. The bid is 49 percent more than Hilb Rogal's closing share price of $30.89 on June 6 in New York Stock Exchange composite trading.

The purchase of Hilb Rogal will enable Willis chief executive officer Joseph Plumeri to increase revenue from North America, where Marsh & McLennan Cos. and Aon Corp. dominate the market, by almost 50 percent. Glen Allen, Virginia-based Hilb Rogal ranks as the No. 8 US insurance broker and has more than 140 offices world-wide, according to the company's website.

"Joe Plumeri has proven successful at consolidation," said Clifford Gallant, an analyst at KBW Inc. who has a "market perform" rating on Willis. "Hilb makes sense from a strategic point of view. Sometimes you have to be a little contrarian, especially when the valuations are attractive."

Willis closed last week at $35.88 a share in NYSE trading, down 5.5 percent for the year. That compares with the 0.9 percent decline at Marsh & McLennan and Aon's 2.3 percent drop.

Hilb Rogal's first-quarter profit fell 38.5 percent to $15.5 million, while profit at Willis declined 1.8 percent to $166 million. Willis said it's acquiring Hilb Rogal for about 2.4 times estimated 2008 revenue.

Willis expects the acquisition to result in $140 million of annual pretax benefits by 2012, with a seven-percent increase to cash earnings per share in 2009, 10 percent in 2010 and 14 percent in 2011. Based on generally accepted accounting principles, the deal will reduce earnings by about three percent next year and then boost profit by two percent in 2010 and six percent in 2011.

Willis will create a new unit called Willis HRH in North America. The business will be led by Don Bailey, the CEO of Willis North America, and Hilb Rogal President F. Michael Crowley. Hilb Rogal chairman and CEO Martin L. Vaughan III will become vice-chairman of Willis Group, the company's statement said.

Brokers help corporate clients shop for insurance coverage, typically taking a percentage of the policy premium as a commission. The price of business policies in the US fell 14 percent in the first quarter because of industry-wide competition, according to a survey compiled by the Council of Insurance Agents & Brokers in Washington.

Before reaching the agreement with Hilb Rogal, Plumeri bid for Marsh & McLennan in New York after lining up financing from Kohlberg Kravis Roberts & Co., the leveraged buyout firm that once owned Willis, the London-based Sunday Times reported in 2006. Plumeri renewed the offer more recently, CNBC's David Faber said in January of this year.

The number of Willis shares awarded to Hilb Rogal investors will depend on the stock's performance in the days leading up to the transaction's closing. Holders could get more or less than $23 a share if the average price of Willis shares exceeds $40.04 or is less than $31.46 in a 10-day period before the deal's completion.

Bank of America Corp. and lawyers at Weil Gotshal & Manges LLP are advising Willis. Hilb Rogal is using bankers at Sandler O'Neill & Partners LP and lawyers from Wachtell Lipton Rosen & Katz.