You probably want to split it up and have different pieces as separate graphics. Unless your continuation pages for your letters also use the same letterhead (this would be unusual), you would want to be using headers and footers rather than a single watermark. (Typically, a watermark is a single graphic in a header or footer.)

A fair amount of good thought on letterhead design in Word is available online.

• Setting Up Letter Templates by Suzanne Barnhill
• How can I get a different header - footer on the second page in Microsoft Word? by Charles Kenyon. Includes tips and links on creating letterhead and letter templates.
• Letterhead Textboxes and Styles Tutorial - two-page template download that demonstrates use of
  • Styles that are based on each other and use the style for following paragraph feature
  • Use of the StyleRef field to insert information from the body of a letter into the continuation page headers automatically
  • The AutoText list field restricted by styles for the salutation and closing
  • Use of Textboxes in headers and footers to reserve space for preprinted letterhead or to have different "margins" for the first page
  • Insertion of a date automatically that will not change when you open the document at a later date
  • Insertion of the typist's name as signer automatically by accessing the Author document property.
• StyleRef Field Tutorial by Charles Kenyon

Note that by using placement of graphics such as textboxes or vertical graphics in a header or footer you can mimic having different side margins on the first page.