Aon & Willis Towers Watson to merge

Global insurance and reinsurance broker Aon has reached a definitive agreement to combine with rival broker Willis Towers Watson (WTW), in an all-stock transaction with an implied combined equity value of roughly $80 billion.

Rumours have been circulating over the past few weeks of potential talks between the two large brokerage firms regarding a potential merger. Today, an agreement between the two has been announced and described as a combination to accelerate innovation on behalf of clients.

The transaction has been unanimously approved by the Boards of Directors of both companies. Under the terms of the arrangement, each WTW shareholder will receive 1.08 Aon ordinary shares for each WTW ordinary share, while Aon shareholders will continue to hold the same number of ordinary shares as they did prior to the merger.

The Chief Executive Officer (CEO) of Willis Towers Watson (WTW) John Haley, commented: “The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital. This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value.”

Greg Case, CEO of Aon, added: “This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors. Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions.”

The pair explain that the agreement combines two highly complementary businesses into a tech-enabled international platform that is both more relevant and responsive to clients.

The new, combined insurance and reinsurance brokerage firm will have an established focus on client value and its combined management teams have considerable experience with the integration of large, complex transactions.

The acquisition of WTW by Aon is expected to generate more than $10 billion in shareholder value creation from the capitalised value of expected pre-tax synergies, based on the blended 2020 price to earnings ratio of WTW and Aon UK on March 6th, 2020, net of $2 billion in expected one-time transaction, retention and integration costs.

The combined company will be named Aon and will maintain operating headquarters in London, UK. Following the completion of the deal, John Haley will take on the role of Executive Chairman with a focus on growth and innovation strategy.

The combined re/insurance brokerage will be led by Greg Case and Aon’s Chief Financial Officer, Christa Davies, along with an experienced and proven leadership team. The new company’s board of directors will comprise proportional members from Aon and WTW’s current directors.

Our sister site Reinsurance News explained in February that WTW was exploring the sale of its wholesale arm, Miller, a move which could have indicated that the broker was preparing for a bigger M&A deal with Aon. Following rumours that Aon and WTW were in talks again, analysts at Wells Fargo suggested that a potential combination with Aon might require WTW to sell its reinsurance arm, Willis Re.

Analysts at KBW followed with a note saying that a deal between the two brokers was possible but unlikely.

The deal comes roughly a year after early stage discussions regarding a potential combination between WTW and Aon collapsed in 2019.

Once the deal completes, existing Aon shareholders will own approximately 63% and existing WTW shareholders will own approximately 37% of the combined firm.

Aon has said that it expects the deal to result in annual pre-tax synergies and other cost reductions of $800 million by the third full-year of combination.

Both parties expect the transaction to close in the first half of 2021, subject to the satisfaction of customary closing conditions and required regulatory approvals.

Now the deal has been announced and following Aon’s call on the acquisition, analysts at KBW have again commented. Ultimately, they remain very confident in Aon’s ability to build shareholder value from this combination over time. However, analysts expect Aon’s shares to trade down and WTW’s to trade up on the deal news.

During the call, notes KBW, management highlighted some disclosure limitations reflecting Irish takeover rules. Furthermore, management teams from both Aon and WTW stressed that the ability to better address client needs is the primary driver for the deal.

The CFO does not expect to see any revenue dis-synergies although analysts at KBW have said that they feel some leakage is inevitable, which implies lower organic revenue growth that the legacy companies would otherwise achieve.