The ongoing merger between re/insurance broking giants Aon and Willis Towers Watson has cleared a significant hurdle today with breaking news of the deal’s approval by the European Commission.
The approval is described as conditional on full compliance with a substantial set of commitments offered by Aon, including the divestment of central parts of WTW’s business to rival player Gallagher.
These commitments are seen by the Commission as a key factor in preserving the competitive integrity of the European Economic Area’s business landscape and, by extension, are intended to bolster Gallagher’s position as a credible alternative to the company that will emerge from Aon’s purchase of WTW.
Despite the EC having identified a number of concerns with the combination, it’s fair to say this development represents a key stride forward in what has been a period of increased disruption and uncertainty for those involved with the transaction.
In the closing months of June, after a guarded and seemingly intense period of negotiation, the US department of Justice filed a civil antitrust lawsuit that blocked the proposed $30 billion mega-merger on the grounds that it would create a “broking behemoth” capable of eliminating competition and increasing prices.
Subsequently, a federal judge ruled out the possibility of a trail before November, and warned of further possible delays as a result of COVID-19 related backlog.
The size and scope of businesses Aon must shed in order to satisfy the European Commission speaks to the enormity of its intended merger with WTW and, at least from the outside, adds weight to the grievances held by US regulators.
Chief among the European Commission’s concerns was the impact on the provision of commercial risk brokerage services to large multinational customers based in Europe.
Aon and WTW are, along with Marsh, known as the Big Three of the brokerage industry and with only a limited number of brokers capable of handling such large and complex risks, a further consolidation would significantly narrow an already constrained competitive landscape.
This issue was seen as a particular concern for classes such as Property & Casualty, Financial and Professional (FinPro) services and Cyber.
Furthermore, irrespective of the customers’ size, the Commission had concerns relating to commercial risk brokerage services to customers for Space and Aerospace manufacturing risks, as well as regarding national markets in the Netherlands and Spain.
Further concerns were flagged regarding the provision of treaty and facultative reinsurance brokerage services, since Aon and WTW are two of the three leading worldwide reinsurance brokers.
The final set of concerns involved the provision of pension administration services to companies in relation to pension schemes offered to their employees for the market in Germany.
To remedy these issues, Aon offered a substantial remedy package that included an agreement to hand over to Gallagher:
- WTW’s entire commercial risk brokerage country organisations in France, Germany, Spain and the Netherlands
- WTW’s Cyber risk brokerage business in the UK
- A substantial set of additional customer contracts and personnel in a number of EEA countries and internationally
- WTW’s entire brokerage business for the risk classes Space and Aerospace manufacturing
- WTW’s entire global treaty reinsurance (Willis Re) and facultative reinsurance (Global Fac) brokerage organisation
Further commitments were made to divest Aon’s entire German retirement benefits consulting and pension administration businesses, as well as Aon’s German investment solutions business.
After these concessions, the Commission felt the transaction would no longer raise competition concerns, but that its decision is conditional upon full compliance.
As a result, Aon can only implement the acquisition of WTW once it has formally assessed and approved Gallagher as suitable purchaser.
The number of successions Aon must make in order to satisfy the European Commission would suggest that US regulators that did indeed deem the proposal, in its original form at least, as a threat to the free market.
“European companies rely on brokers to obtain best possible solutions to manage their commercial risk,” said Executive Vice-President Margrethe Vestager, in charge of competition policy.
“Aon and Willis Towers Watson are leading players in the insurance and reinsurance brokerage markets.
“The remedy package accepted by the Commission ensures that European companies, including insurance companies and large multinational customers, will continue to have a good choice and good services when selecting a broker suitable for their needs.”