Insurance brokers Aon and Willis drop $ 30 billion merger; risk of slow trial

July 26 (Reuters) – Aon Plc (AON.N) and Willis Towers Watson Plc on Monday called off a $ 30 billion merger that would have created the world’s largest insurance broker, saying objections from U.S. regulators created unacceptable delays and uncertainty.

The deal, announced in March 2020, had previously addressed antitrust concerns in Europe and elsewhere, but encountered a major hurdle last month when the US Department of Justice filed a lawsuit to block it, arguing it would reduce competition and lead to higher prices. Read more

The companies have said they will end their ongoing litigation with the US Department of Justice (DOJ) and that Aon will pay Willis $ 1 billion in termination fees. The timing and financial impact of the payment was not immediately clear. Aon is due to release its second quarter results on Friday.

The DOJ did not immediately comment. Aon declined to comment. Willis did not immediately respond to a request for comment.

Aon shares were up 6.4% to $ 247.45 while Willis Towers shares were down 6.6% to $ 211.32 at the start of trading.

The decision to roll back the merger came as Aon saw the risk of a possibly nine-month long trial process that would push back the deal’s close until 2022, even after a federal judge ruled. decided last week to narrow the scope of trial issues, according to a person familiar with the matter.

The remaining questions were whether large US customers would face reduced competition when purchasing two types of insurance: damage and financial risk coverage; and employee health and benefits coverage, according to an order signed July 20 by U.S. District Judge Reggie Walton. Read more

The problems posed a threat to customers and employees of insurers as companies are not organized by customer size, so parts would be difficult to sell, the source said.

“If we had tried to separate the big clients, we would have broken up the business volumes,” the source said, referring to the policy portfolios. This would raise concerns about whether the account executives would have to leave Aon with the policies that were sold, or stay with Aon but lose clients.

Walton, who has previously been entrusted with criminal cases relating to the Jan.6 attack on the United States Capitol, said earlier this month those would be heard ahead of the Aon-Willis-DOJ trial , further delaying the date of conclusion of the agreement.

“We don’t know exactly how many of these people will insist on being tried,” Walton said at a July 6 hearing. “But, of course, if they do, since some of them are in jail, their rights to a speedy trial will have to take precedence over other issues.”

The DOJ had also alleged that the combination of the two big insurance brokers would hurt competition in reinsurance brokerage, retirement and retirement planning, and private multi-operator healthcare exchanges for retirees. But the parties had started to finalize a settlement on these issues, leaving only two issues to be judged.

“Despite the regulatory momentum around the world, including the recent approval of our merger by the European Commission, we have reached an impasse with the US Department of Justice,” said Aon Chief Executive Officer Greg Case, in a press release.

In a video sent to employees, Case explained the rationale for dropping the merger plan, despite favorable action by a federal judge last week.

“The DOJ’s position is remarkably out of step with the rest of the global regulatory community and we were confident that we would win in court,” said Case.

“Unfortunately, while we asked for a speedy trial, the current course with the DOJ would likely have done us well in 2022. At best, the DOJ prospect demonstrates a fundamental misunderstanding of the market. At worst, our combination has been blocked by a bad timing and other factors ultimately beyond our control. “

The divestitures agreed to by the companies included Aon’s US retirement unit, the US retiree health care exchange and its retirement business in Germany. The global reinsurance business of Willis Towers Watson was also included. EU antitrust regulators approved the merger earlier this month subject to a portion of the sales. Read more

Aon ranks second and Willis fifth among US commercial insurance brokers in the US market, according to a survey by Business Insurance magazine.

The other major brokers in the United States are the world’s leading insurance broker Marsh & McLennan Cos Inc (MMC.N), Arthur J Gallagher & Co (AJG.N) and Alliant Insurance Services Inc.

Willis Towers Watson said on Monday it would increase its existing stock buyback program by $ 1 billion.

Reporting by Sohini Podder, Niket Nishant and Ankur Banerjee in Bengaluru, Alwyn Scott in New York; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and Marguerita Choy

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