Aon’s CEO Greg Case has called the US Department of Justice “out of step” with the rest of the world’s regulatory regimes, while the Attorney General said that the collapse of Aon’s attempt to acquire rival insurance and reinsurance broker Willis Towers Watson (WTW) was a “victory” for competition and American business.
The rhetoric shows just how far apart the two sides perhaps were on getting the now failed merger over the line.
It also suggests that, had Aon continued to pursue its $30 billion acquisition of Willis Towers Watson, the additional remedies and divestitures required to seal the deal could have been really significant.
As we reported yesterday, Aon and Willis Towers Watson (WTW) announced that they had terminated their combination, or merger agreement, which effectively cancelled Aon’s acquisition plans to become the largest player in the market.
Aon was quick to try and restore its shareholders faith in the company, announcing that its CEO and CFO would be staying with the company until April 2026 at the earliest.
Willis Towers Watson (WTW), meanwhile, is seen to have a little more uncertainty attached, given its CEO John Haley’s contract was only extended through to the completion of the planned merger, or December 31st if the merger was not consummated by then.
But WTW did come out with an announcement to try and appease shareholders later yesterday, effectively saying that it would look to return the $1 billion merger break fee it had earned from Aon to its shareholders, increasing its existing share repurchase program by that amount.
The third-party in this merger failure, is of course Gallagher (AJG), which was lined up for significant acquisitions of divested assets from WTW, including the reinsurance broking unit Willis Re.
Arthur J. Gallagher announced the termination of its agreements to acquire those WTW units, saying that it would now look to deploy excess cash through its merger program as opportunities allow.
As we also explained yesterday, there is a chance that Gallagher has an opportunity now to move in and negotiate directly with WTW to acquire some of its broking assets, potentially still including the reinsurance broking division.
But back to the rhetoric between Aon and the US Department of Justice.
Timing and the delays to the trial in the US appear to be the driver for the merger being abandoned, as risks were rising that damaging divestments may be required to satisfy the US DOJ, which analysts are now (after the fact) all suggesting would have significantly reduced the economic rationale for the deal.
In particular, there were fears at Aon that an agreement with the DOJ could have been harmful to its large clients book across classes of broking business, resulting in a greatly reduced client-base and demotivated employees left in positions where their books of business had been slashed.
Overall, the back story our industry sources are discussing is that Aon just felt the risks of getting embroiled in a trial with no end-date, that would have taken the merger process some six months or more past the outside date, while also threatening to decimate certain profitable parts of its business, reduced the gains the merger would have provided so much as to make it less attractive.
At the same time, it’s clear the ongoing uncertainty had also been damaging both of the merger parties businesses, not least through an exodus of talent, which may also have been a driver to abandon the deal.
Greg Case said in a video sent to Aon staff that “The demands made by the US Department of Justice would have stifled innovation and destroyed our client-serving capability.
“The DOJ position is remarkably out of step with the rest of the global regulatory community and we’re confident that we’d win in court.
“Unfortunately, while we requested a speed trial, the current course with DOJ would have likely taken us well into 2022.”
He continued, “At best, DOJ’s perspective demonstrates a fundamental misunderstanding of the marketplace. At worst, our combination was blocked by poor timing and other factors outside our control.
“Ultimately team, our decision was clear, we simply will not compromise colleague and client priorities to close the combination.”
Case also said that the decision to abandon the merger gives certainty and that Aon’s momentum continues to be strong.
In a press release from the US DOJ, Attorney General Merrick B. Garland explained the thinking behind stopping the largest merger in insurance and reinsurance broking history.
“This is a victory for competition and for American businesses, and ultimately, for their customers, employees and retirees across the country,” the Attorney General explained. “American employees and retirees rely on dependable health care and retirement plans provided by their employers. Many of those employers, in turn, rely on insurance brokers like Aon and Willis Towers Watson for managing the complexities of these health and retirement benefits. Businesses also rely on Aon and Willis Towers Watson to compete for the bulk of their risk management portfolio, including property and casualty insurance. The decision to abandon this anticompetitive merger will help preserve competition in insurance brokering.”
It’s hard to see how two sides with such differing opinions could ever have reached a satisfactory conclusion that allowed the deal to proceed to completion.
The rhetoric clearly shows the gaps that existed and as a result it’s no real surprise Aon took the difficult decision to abandon the process and go-it-alone.
It’s unlikely Aon has another chance to make an acquisition that would propel it far ahead of its main rival MMC (marsh and Guy Carpenter) in the insurance and reinsurance broking world now, as options are limited for the company, in terms of meaningful sized competitors to buy.
It’s going to be interesting to see how the broking landscape evolves going forwards after this.
Could we see a renewed push to modernise the broking process, disrupt the marketplace and attempt to gain a lead on each other, from Aon and rival MMC?
Or will we see them slip back into the status-quo of two giants dominating a marketplace, with a now perhaps even wider gulf down to number 3?
– Go-it-alone challenge bigger for WTW than Aon. An opportunity for AJG?
– Aon’s acquisition of Willis Towers Watson cancelled, will pay break fee.
– Aon offers to sell more WTW interests to appease New Zealand regulator.
– EC clears Aon’s acquisition of Willis Towers Watson with conditions.
– Aon – Willis offered earlier US trial, but still past merger outside date.
– Failure of WTW merger over US DoJ trial date “unacceptable” – Aon.
– South Africa adds to Aon Willis merger divestiture load.
– Aon – Willis Towers Watson merger review by Singapore to deepen.
– Aon & WTW “surprised” by DoJ lawsuit. Gallagher ready to snap up divestitures.
– Divestitures more likely than Aon abandoning Willis deal: Analysts.
– US DOJ sues, says Aon Willis would be “broking behemoth”, parties disagree.
– Aon selling $1.4bn of US retirement units to address US DOJ merger questions.
– US DOJ may not challenge Aon / Willis Towers Watson merger: Report.
– Aon / WTW: Willis Re sale supported, as industry wants broker choice.
– Aon sells German pensions business to LCP, as further step towards WTW merger.
– Aon & WTW agree $3.57bn sale of assets to Gallagher, including Willis Re.
– Gallagher likely buyer of $3bn Aon – Willis (WTW) divestments: Report.
– Aon expected to get conditional WTW acquisition approval from EC: Reuters.
– EC asks for feedback on sale of Aon / WTW assets, as MMC gains talent.
– Aon in proactive offer to US DOJ on Willis Towers Watson merger: Report.
– Aon – Willis Towers Watson divestiture reports expand to US & Bermuda.
– EC extends Aon – Willis Towers Watson merger deadline again.
– Aon – Willis Towers Watson merger deadline pushed back by EC.
– Aon – Willis Towers Watson merger assessed by Singapore competition authority.
– Aon & Willis Towers Watson merger may face EC statement of objection: Reuters.
– Aon & Willis Towers Watson merger to “significantly lessen competition”.
– Aon & WTW cite alt. capital, disintermediation & marketplaces in defence of merger.
– Aon & Willis Towers Watson reveal leadership of combined company.
– Willis Re divestment seen necessary for Aon – WTW merger to complete.
– If Aon / WTW leads to divestitures, AJG seen as “best fit” for Willis Re: KBW.
– EC investigates Aon / WTW deal, cites competition “concerns”.
– Aon + WTW to “extend proven model of catastrophe bonds” – CEO’s Case & Haley.
– Aon & Willis Towers Watson to merge.
Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.
Get a ticket soon to ensure you can attend. Secure your place at the event here!