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Aon confirms combination with Willis Towers Watson

9th March 2020 - Author: Matt Sheehan

Global insurance and reinsurance broker Aon has confirmed that it will combine with rival broker Willis Towers Watson, following weeks of speculation about a potential deal.

Aon WillisThe companies today announced a definitive agreement to combine in an all-stock transaction with an implied combined equity value of approximately $80 billion.

“This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors,” said Aon CEO Greg Case.

The combined company will continue to operate under the name Aon, and will maintain its headquarters in London.

It will be led by Greg Case and Aon Chief Financial Officer Christa Davies, along with a leadership team that reflects the complementary strengths of both organizations.

John Haley, currently the CEO of Willis Towers Watson, will take on the role of Executive Chairman of the combined company with a focus on growth and innovation strategy.

The Board of Directors will comprise proportional members from Aon and Willis Towers Watson’s current directors.

Case continued: “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 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,” added Willis Towers Watson CEO John Haley.

“This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value.”

Speculation about a possible merger deal between the two broking giants was sparked last week after WTW confirmed that it was exploring “strategic alternatives” for Miller, its wholesale unit.

The move comes almost a year after early stage discussions regarding a potential combination between WTW and Aon collapsed.

Commentators had theorised that the Miller sale could be preparing the ground for a bigger mergers & acquisitions (M&A) deal, possibly once again with Aon as the brokers wait out the one-year cooling off period between rounds of negotiation.

Now confirmed, Aon explained that the deal will provide it with an opportunity to expand and further accelerate its existing growth strategy, as well as the growth strategy of Willis Towers Watson.

It added that the new firm will be positioned to immediately deliver mid-single digit organic revenue growth or greater and, over the long term, double-digit free cash flow growth.

will have an established focus on utilising data-driven insights to create new sources of client value.

The deal is expected to drive year one earnings accretion to Aon adjusted EPS with free cash flow accretion of more than 10% after full realisation of $800 million of expected pre-tax synergies.

The brokers anticipate savings of $267 million in the first full year of the combination, reaching $600 million in the second full year, with the full $800 million achieved in the third full year.

Aon also claims that the transaction will generate more than $10 billion in shareholder value creation from the capitalized value of expected pre-tax synergies.

The combination currently remains subject to approval by shareholders and regulators, but is expected to close some time during the first half of 2021.

Under the terms of the agreement, each Willis Towers Watson shareholder will receive 1.08 Aon ordinary shares for each Willis Towers Watson ordinary share, and Aon shareholders will continue to own the same number of ordinary shares in the combined company as they do immediately prior to the closing.

Upon completion, existing Aon shareholders will own approximately 63% and existing Willis Towers Watson shareholders will own approximately 37% of the combined company on a fully diluted basis.

Analysts have speculated that Willis Towers Watson could have to offload more of its businesses ahead of a combination with Aon, to avoid over concentration in certain markets.

With Miller already on the table, Wells Fargo Securities also identified Willis Towers Watson’s reinsurance arm, Willis Re, as a potential candidate for a sale.

Analysts at KBW have said they’re “very confident in Aon’s ability to build shareholder value from this combination over time, but expect Aon’s shares to trade down in the near-term, while Willis Towers Watson shares will trade up on the news.

The firm also sees rival brokers Arthur J. Gallagher, Brown & Brown and BRP Group as near-term beneficiaries of inevitable producer and revenue leakage, as well as possible unit sales to address antitrust concerns.

KBW further noted that the primary rational for the deal seems to be to better address client needs, although expense synergies will also make the deal financially attractive.

This identification of under-served client needs should help to offset the typical combination-related revenue leakage as producers and clients move elsewhere, it added.

Analysts also expect to see some eventual potentential upside beyond the $800 million guidance, given Aon’s history of consistently outperforming its initial expence reduction guidance.

“Another blockbuster deal in the global insurance broking market, seeing brokers ranked 2 & 3 combine together to become the largest global insurance broker, knocking Marsh off its current perch,” noted Simon Fitzsimmons, Director, Mazars Deal Advisory.

“The CMA will no doubt deliberate on the transaction before giving its blessing (which also needs shareholder approval) – however, speculation already abounds that some of the combined divisions will need to be spun-off to appease the CMA as the market options for clients are compressed even further by this merger following that of Marsh and JLT only a year ago,” Fitzsimmons went on.

“Further M&A opportunities from this deal will materialise either indirectly through chance spin-offs or directly as a result of the CMA decision, and with a predicted c£1bn of synergies, the ripples of this move will be felt throughout the market for some time to come.”

Aon’s financial advisor for this deal is Credit Suisse Securities (USA) LLC and its legal advisors are Latham & Watkins, LLP, Freshfields Bruckhaus Deringer LLP and Arthur Cox.

Willis Towers Watson, meanwhile, has Goldman Sachs & Co. LLC as its financial advisor, and its legal advisors are Weil, Gotshal & Manges LLP, Skadden, Arps, Slate, Meagher & Flom LLP and Matheson.

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