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Analysts see ‘more go-it-alone headwinds’ at WTW than Aon as merger collapses

26th July 2021 - Author: Luke Gallin

As news broke today that Aon’s proposed combination with rival re/insurance brokerage Willis Towers Watson (WTW) has been terminated, analysts at Keefe, Bruyette & Woods (KBW) see greater headwinds for WTW moving forwards.

HeadwindsThe proposed $30 billion mega-merger of two of the world’s largest brokers fell apart today as the pair reached an impasse with the U.S. Department of Justice (DoJ).

First announced 16 months ago, the proposed combination raised antitrust concerns in numerous jurisdictions, and while the European Commission (EC) approved the deal just a few weeks ago, the DoJ and Aon/WTW had been preparing to go to trial over the deal.

Of course, now that the deal’s been scrapped the trial with the DoJ is no longer needed and Aon and WTW intend to move forward independently, with Aon set to pay a $1 billion termination fee to WTW.

Commenting on the deal breakdown, analysts at KBW have said they are “very surprised” amid a belief that senior management at Aon would be able to extract meaningful value from even a partial net acquisition of WTW’s assets.

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Industry news suggests that since the deal was first announced, both companies have lost talent amid uncertainty. However, “we see more go-it-alone headwinds at WLTW than at AON because of perceived CEO uncertainty at WLTW,” says KBW.

Also today, Aon announced contract extensions for its Chief Executive Officer (CEO), Greg Case and Chief Financial Officer (CFO), Christa Davies, for another three years. This announcement, say analysts, provides huge comfort that Aon will be able to rapidly regain its footing in the positive part of the market cycle. However, at WTW there’s been no such announcement.

Back in 2018, WTW announced the extension of current CEO John Haley’s contract until January 1st, 2021, stating at the time that he would retire. But Haley remains at the helm of WTW and it’s unclear how long he will remain in the role and also who his successor might be.

For Aon, analysts at KBW expect the scrapping of the deal to see the broker trade up today owing to removal of integration uncertainty.

However, WTW and Arthur. J. Gallagher (which presumably is unlikely to acquire Willis Re and other certain WTW assets now the deal has been called off), will probably trade down on the news, say analysts.

Aon’s shares closed on Friday, July 23rd at a market price of $232.48 per share, but are trading up this morning on the Nasdaq by around 7% to $248, which is in-line with KBW’s previous post-break valuation for the firm.

The market price for WTW shares at close on Friday, July 23rd was $226.41 per share, but these are now trading down on the Nasdaq by roughly 7% to around the $211 to $212 mark, which is again in-line with KBW’s earlier post-break valuation of $211 to $224 for WTW.

It seems news of the collapse has also hit the share price of AJG, which was set to acquire numerous WTW assets for what’s been described as a low price. At close on Friday, July 23rd, AJG was trading at $143.05, but is currently trading down by more than 2% to around the $139 mark.

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