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Aon could have closed WTW deal, but options unappealing: CEO Case

30th July 2021 - Author: Luke Gallin

Global insurance and reinsurance broker Aon could have completed its now terminated $30 billion combination with Willis Towers Watson (WTW), but the two options proposed to close the deal would have been damaging for the firm, according to its Chief Executive Officer (CEO), Greg Case.

aon-willis-towers-watson-merger-antitrustAon released its second-quarter 2021 financial results today, which was followed by an earnings call with management which unsurprisingly had a focus on its failed merger with rival broker WTW.

While the deal gained regulatory approval in numerous jurisdictions, notably in Europe – dependent on various divestments in order to satisfy competition concerns – the global brokerage reached an impasse with the antitrust division of the U.S. Department of Justice, which filed a civil lawsuit to block the merger.

Commenting on the transaction during the Q2 earnings call, CEO Case said that the main thesis behind the combination was “exceptionally strong” and was actually made stronger by the COVID-19 pandemic.

“We received strong shareholder approval, regulatory momentum in virtually every jurisdiction around the world,” said Case.

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“Just so you understand, we reached an impasse with the U.S. Department of Justice. We could have completed the deal in a couple of ways, but we made the choice to reject what we believe were two unacceptable options,” he continued.

One option available to Aon and WTW was via a further set of remedies, such as the kind of divestments that saw the deal conditionally approved by the European Commission.

“But it wouldn’t have been the right answer for us, it simply would not have been the right answer,” stressed Case. “We roughly knew what it would take. It candidly would have damaged our client serving capabilities and as we described before, stifled innovation.”

Ultimately, taking this approach to appease the DoJ would have sacrificed the Aon United strategy, something highlighted by Case and other executives at the firm during the call.

The second option, which Case describes as “equally unappealing”, was litigation.

After the DoJ filed an antitrust civil lawsuit, seeking to block the merger on the grounds it would create a “broking behemoth”, a federal judge advised that trial was unable to begin before November and could be delayed further owing to a backlog of cases.

Court documents revealed that debates over the scheduling of key dates in the legal process were intensifying, with both sides unhappy with proposed deadlines.

“We had an exceptionally strong hand from our view, but the timeline pushed the deal into 2022, at least it looked like it did in every way, shape or form; also unacceptable,” said Case. “We’re just not going to wait in a holding pattern well into 2022 to have this resolved, this is too long.”

“So we wanted to make a choice for our firm and it’s on our terms, to move forward independently. And obviously we’re in a position of strength when you think about where we were in 2020, and where we are now; we’re very much in a position of strength. And we’re excited about how we move forward with real enthusiasm given by our team and the strength of our Aon United strategy,” he added.

Also on the call was Eric Andersen, President at Aon, who expanded on Case’s message that the company remains in a solid position despite the deal collapsing.

“We went into, certainly the pandemic and the Willis Towers Watson combination, in a great place. We were very strong going in, both operationally and with revenue growth. And when we started the integration management effort we were essentially able to maintain the client momentum, and continue to work on our strategy.

“During the last 16 months, the team’s really perfected our Aon operating model, in delivering the Aon United strategy as well as our go to market; how do we actually pull all these teams together for the benefit of our clients.

“All that’s going to be incorporated going forward, which will continue to build the momentum. So, I think while we came into this process in a strong position, I think we’re actually coming out of it in an even stronger position,” said Andersen.

As Aon moves forward from the proposed WTW transaction, it’s third-quarter 2021 results will include the $1 billion termination fee it has already paid to WTW, and also another $300 million to $400 million of costs related to the termination.

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