The Competition Commission of South Africa (CCSA) has required that brokers Aon and Willis Towers Watson (WTW) make a number of significant divestments to remedy competition concerns before their pending merger can be approved in the country.
The regulator has asked that the brokers divest WTW’s entire global reinsurance broking business units dedicated to treaty and facultative reinsurance services, to a third party with a presence in several countries across the globe.
This requirement will likely be met by the $3.57 billion sale of Willis Re to Gallagher, agreed in May.
But it has also set conditions regarding WTW’s global commercial risk brokerage businesses in Aerospace Manufacturing and Space risks, its main commercial risk brokerage businesses in Cyber risks in the European Economic Area (EEA), and the entirety of WTW’s commercial risk broking business in Germany, France, the Netherlands, and Spain.
Many of these commercial risk broking divestments will also be met by previously announced divestments from the EC focused remedy package.
In South Africa, the CCSA noted that the parties have offered to divest the entire WTW short-term insurance broking services to the same third party acquiring the divested reinsurance business (which suggests that would be Gallagher).
These remedy conditions have been set following an investigation which concluded that the combination of Aon and WTW will result in a “substantial lessening and/or prevention of competition in the market for the provision of reinsurance broking services in South Africa.”
In particular, the Commission found that the proposed merger would remove an effective competitor and by so doing raise the level of concentration in an already concentrated market. “Post-merger, the customers of the merging parties will effectively have limited options (from 3 to 2 main brokers) and the merged entity is likely to exercise market power in the reinsurance market post-merger,” it stated.
Additionally, the CCSA found that the acquisition would result in a structural change in the corporate short-term insurance broking services that would reduce competition, as there are only 3 large players who are considered to have the global presence as well as the capacity to cater for larger South Africa customers. Post-merger, this would be reduced to two.
However, if the proposed remedies are met, the regulator believes it will “completely remove the overlaps between activities of the merging parties in relation to the provision reinsurance broking and shortterm insurance broking services in South Africa and is likely to create a credible third competitor, thus restoring competition in both markets.”
The update in South Africa follows news that the U.S. Department of Justice (DOJ) has sued to block the $30 billion combination of Aon and WTW on the grounds that it would create a “broking behemoth.”
In response, some analysts believe that further divestiture is a more likely outcome than the deal being abandoned completely – a move which would see Aon pay WTW a $1 billion termination fee.
The deal has also hit regulatory roadblocks in Singapore and Australia, although reports have suggested that the European Commission (EC) was likely to approve the deal after the parties agreed to various divestments to satisfy competition concerns in Europe.