Aon and Willis call off $30bn merger after ‘impasse’ with US regulators

Aon and Willis Towers Watson on Monday called off a $30bn merger that would have created the world’s largest insurance broker, saying US regulators’ objections created unacceptable delay and uncertainty.

The decision, hailed by some as an early victory for the Biden administration’s department of justice, which sued in June to block it, stood at odds with European regulators who recently approved the deal on condition the companies sell assets. Those now-halted sales largely affect broker Arthur J Gallagher & Co.

Combining Aon and Willis, which rank second and third in revenue behind Marsh & McLennan, would have created a new leader with $20.3bn in annual revenue, compared with $17.2bn for Marsh.

Aon will pay Willis a $1bn termination fee, the timing and financial impact of which was not immediately clear. Aon reports second-quarter results on Friday. Willis said on Monday it would boost share repurchases by $1bn.

“Despite regulatory momentum around the world ... we reached an impasse with the US department of justice,” Aon CEO  Greg Case said in a statement.

US attorney-general Merrick Garland called the termination “a victory” because employers “rely on insurance brokers like Aon and Willis Towers Watson for managing the complexities of these health and retirement benefits”, he said.

Aon declined to comment. Willis did not immediately respond to a request for comment.

Aon’s shares were up at $254.72, while Willis Towers’ stock fell 9% to $205.93 in New York trading.

Timing 

Though the justice department argued the combination would broadly reduce competition and lead to higher prices, US district judge Reggie Walton last week narrowed the trial scope to two issues: whether large US companies would be worse off when buying property, casualty and financial risk coverage; and health-and-benefit coverage for employees.

Walton, who has been assigned criminal cases related to the January 6 US Capitol attack, warned that those could be heard before the Aon-Willis-justice department suit, which risked further delaying the deal’s approval.

“Since some of (the defendants) are incarcerated, their rights to a speedy trial are going to have to take precedent,” Walton said at a July 6 hearing.

A lengthy court process of possibly nine months would push the deal’s closure well into 2022, and that posed too much risk, according to a person familiar with the matter.

Solving the remaining justice department issues also posed a threat to customers and employees because the businesses are not organised by client size, making selling parts difficult, the source said.

“If we had tried to separate out large clients, we would have broken up books of business,” the source said, referring to portfolios of policies. This would raise concerns about whether account executives would need to leave Aon with the policies that were sold, or would remain with Aon but lose customers.

“The companies were not able to come to an agreement with the [justice department] that made economic sense for them,” said Piper Sandler analyst Paul Newsome. “I don't think it's more complicated than that.”

The justice department had also alleged the combination would reduce competition in reinsurance broking, retirement and pension planning and private retiree multicarrier healthcare exchanges. But the sides had begun finalising settlement on those issues.

In a video to Aon employees, Case said: “The justice department’s position is remarkably out of step with the rest of the global regulatory community and we were confident that we would win in court.”

The halted divestitures included Aon’s US retirement unit, US retiree healthcare exchange and its retirement business in Germany, along with Willis’s global reinsurance business.

Aon also said it had extended by three years the employment contracts of Case and CFO Christa Davies, to April 1 2026, to provide stability.

Some saw the justice department’s victory as a sign of a new tone in Washington. “I applaud attorney-general Garland for his commitment to addressing America’s monopoly problem by stopping consolidation and aggressively enforcing the antitrust laws,” David Cicilline, chair of the House antitrust subcommittee, said in a statement.

Broader implications were felt by companies in the midst of large deals that could also attract the justice department’s antitrust gaze.

Discovery pared gains to 1.9% after jumping 10% in early trading. The media firm announced in May a $43bn combination with AT&T’s WarnerMedia.

Kansas City Southern dipped 1.2%. The railroad operator agreed to be acquired by Canadian National Railway, though the Biden administration has shipping costs in the sector in its anticompetitive sights.

Reuters