Wednesday, September 29

Insurance brokers Aon, Willis scrap $30 bln merger; slow trial risk


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

The deal, announced in March 2020, had already addressed antitrust concerns in Europe and elsewhere but hit a major roadblock last month when the US Department of Justice sued to block it, arguing it would reduce competition and lead to higher prices.

The companies said they would end their current litigation with the US Department of Justice (DOJ), and Aon would pay $1 billion in termination fee to Willis. The timing and financial impact of the payment was not immediately clear. Aon is due to report second -quarter results on Friday.

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The DOJ had no immediate comment. Aon declined to comment. Willis did not immediately respond to a request for comment.

Aon’s shares were up 6.4% at $247.45 while Willis Towers’ stock was down 6.6% at $211.32 in early trading.

The decision to scrap the merger came as Aon saw risk of a lengthy trial process of possibly nine months that would push the deal’s closure well into 2022, even after a federal judge decided last week to narrow the scope of trial issues, according to a person familiar with the matter.

The remaining issues were whether large US clients would face diminished competition when buying two types of insurance: property, casualty and financial risk coverage; and health-and-benefit coverage for employees, according to an order signed on July 20 by US District Judge Reggie Walton.

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The issues posed a threat to insurer clients and employees because the businesses are not organized by client size, so selling parts would be 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.

Walton, who has already been assigned criminal cases related to the Jan. 6 attack on the US Capitol, said earlier this month that those would be heard before the Aon-Willis-DOJ suit, further delaying the date of the deal being concluded.

“We don’t know exactly how many of those individuals will insist on going to trial,” Walton said at a July 6 hearing. “But, obviously, if they do, since some of them are incarcerated, their rights to a speedy trial are going to have to take precedent over other matters.”

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The DOJ had also alleged that combining the two large insurance brokers would harm competition in reinsurance broking, retirement and pension planning and private retiree multi-carrier healthcare exchanges. But the sides had begun finalizing settlement on those issues, leaving only two issues for trial.

“Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the US Department of Justice,” Aon Chief Executive Officer Greg Case said in a statement.

In a video sent to employees, Case explained the rationale for dropping the merger plan, despite favorable action last week by a federal judge.

“The DOJ position is remarkably out of step with the rest of the global regulatory community and we were confident that we would win in court,” Case said.

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“Unfortunately, while we requested a speedy trial, the current course with DOJ would likely have taken us well into 2022. At best, DOJ’s perspective demonstrates a fundamental misunderstanding of the marketplace. At worst, our combination was blocked by poor timing and other factors ultimately outside our control.”

The divestitures agreed by the companies included Aon’s US retirement unit, US retiree healthcare exchange and its retirement business in Germany. Also included was Willis Towers Watson’s global reinsurance business. EU antitrust regulators approved the merger earlier this month conditioned on some of the sales.

Aon ranks second and Willis fifth among US commercial insurance brokers in the US market, according to a survey by the Business Insurance magazine.

The other big brokers in the United States are world’s No.1 insurance broker Marsh & McLennan Cos Inc, Arthur J Gallagher & Co and Alliant Insurance Services Inc.

Willis Towers Watson said on Monday it would increase its existing share repurchase program by $1 billion.

(Reporting by Sohini Podder, Niket Nishant and Ankur Banerjee in Bengaluru, Alwyn Scott in New York; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and Marguerita Choy)

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