Progressive (NYSE: PGR) an auto insurance company, closed at $14.50. PGR July option implied volatility is at 49, August is at 44; below its 26-week average of 60; according to Track Data, suggesting decreasing price movement.

Willis Group (NYSE: WSH) a brokerage and risk management company, closed at $25.66. WSH July and August option implied volatility of 44 is below its 26-week average of 54, according to Track Data, suggesting decreasing movement.

Marsh & McLennan (NYSE: MMC) closed at $20.39. MMC July option implied volatility is at 32, August is at 36; below its 26-week average of 47 according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Analyst upgrades:

• Janney Montgomery upgraded Aqua America (NYSE: WTR) to Buy from Neutral on valuation, viewing the recent weakness as a buying opportunity. The firm has a $19 target on the stock.
• UBS upgraded Gildan Activewear (NYSE: GIL) to Buy from Neutral due to customer Broder's improved liquidity and the improved outlook for margins.
• RBC Capital upgraded State Street (NYSE: STT) to Top Pick from Outperform and raised its target to $55 from $40. The analyst said the $2B capital raise addresses TCE ratio concerns and large unrealized losses in the investment portfolio.
• Sherwin-Williams (NYSE: SHW) was upgraded to Overweight from Neutral at JP Morgan.
• Advance Auto Parts (NYSE: AAP) was upgraded to Buy from Underperform at Banc of America/Merrill.
• M&T Bank (NYSE: MTB) was upgraded to Outperform from Market Perform at Bernstein.

MOST NOTEWORTHY: Tronox, Willis Group and Synovus FInancial were today's noteworthy downgrades:

• Lehman downgraded Tronox (NYSE: TRX) to Underweight from Equal Weight citing increased costs in freight, process, and energy costs, and end market weakness.
  
• Citigroup downgraded shares of Willis Group (NYSE: WSH) to Hold from Buy as they believe the acquisition of Hilb, Rogal and Hobbs (NYSE: HRH) will limit margins and stock upside through 2009. Citigroup lowered their target price to $36 from $40.
  
• Morgan Keegan downgraded Synovus Financial (NYSE: SNV) to Market Perform from Outperfrom citing concerns related to potential losses to the construction and development portfolio and a likely dividend cut.

OTHER DOWNGRADES:

• Tween Brands (NASDAQ: TWB) and Gymboree (NASDAQ: GYMB) were downgraded to Market Perform from Outperform at Friedman Billings.
  
• Jefferies cut Asset Acceptance (NASDAQ: AACC) to Underperform from Hold.
  
• Merill downgraded Orient-Express (NYSE: OEH) to Underperform from Neutral.

MOST NOTEWORTHY: Lehman, PNM Resources and Hilb, Rogal and Hobbs were today's noteworthy downgrades:

• Wachovia downgraded Lehman (NYSE: LEH) to Market Perform from Outperform citing the larger capital raise, poorly marked assets, and lack of confidence.
  
• Jefferies downgraded PNM Resources (NYSE: PNM) to Hold from Buy citing valuation and lower contribution from the company's First Choice supply subsidiary.
  
• Hilb, Rogal and Hobbs (NYSE: HRH) was cut at Davenport to Neutral from Buy following the acquisition by Willis Group Holdings (NYSE: WSH).

OTHER DOWNGRADES:

• Merrill lowered Fortis (OTC: FORSY) to Neutral from Buy.
  
• Continental Resources (NYSE: CLR) was downgraded to Hold from Buy at Deutsche Bank.
  
• Calyon downgraded Helmerich and Payne (NYSE: HP) to Neutral from Add.

Willis Group Holdings (NYSE: WSH), the third largest insurance broker, is about to become much bigger. Yes, the company has announced a $2.1 billion acquisition of Hilb Rogal & Hobbs (NYSE: HRH). The transaction is half cash and half stock. Although, Willis plans a $1 billion buyback to sop up the shares.

Based on the financials, the deal looks smart. Willis plans to realize annualized synergies of about $140 million by 2012. What's more, the transaction should be accretive to cash earnings on the close (which is expected in the Q4).

More importantly, Willis is likely to boost its growth. After all, there will be a doubling of North American revenues. There will also be a stronger footprint in New York, Boston, New Jersey, California, Florida, Philadelphia and Illinois. In other words, expect more pressure on McLennan Cos. (NYSE: MMC) and Aon (NYSE: AOC).

Something else: HRH will add expertise in key areas like personal lines, healthcare, environmental and executive risk.

No doubt, Willis is engaging in a transformative acquisition. The deal is the biggest in the sector since Marsh & McLennan's purchase of Sedgwick Group in 1998.

There are definitely some big risks for Willis.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.