Aon and Willis Towers Watson said Monday that they have agreed to terminate their proposed merger agreement. The firms are to remain independent organizations.
Aon CEO Greg Case said in a news release the firms are calling off the deal to end the antitrust suit filed by the U.S. Department of Justice.
“Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice,” Mr. Case said. “The DOJ position overlooks that our complementary businesses operate across broad, competitive areas of the economy.”
Mr. Case added: “We are confident that the combination would have accelerated our shared ability to innovate on behalf of clients, but the inability to secure an expedited resolution of the litigation brought us to this point.”
Aon and Willis Towers Watson originally announced the merger agreement in March 2020. At the time, the plan was to create an $80 billion firm through the all-stock $30 billion deal.
The European Commission gave conditional approval for the merger on July 9, after Aon agreed to sell its pension consulting, pension administration and investment consulting businesses in Germany to consultant Lane Clark & Peacock.
The Justice Department said June that it filed a civil antitrust lawsuit to block the proposed deal. Attorney General Merrick B. Garland said in a release: “Allowing Aon and Willis Towers Watson to merge would reduce that vital competition and leave American customers with fewer choices, higher prices, and lower quality services.”
Aon will pay Willis Towers Watson a $1 billion termination fee.
The merger being terminated also means that the planned divestitures of Aon’s Germany-based businesses to LCP, its U.S. retirement consulting business to Aquiline Capital Partners and Aon Retiree Health Exchange business to Alight Solutions have also been canceled, since were contingent on the deal closing.
“After a decade of regulatory passivity, Washington is taking a closer look at financial services. This was a classic ‘vertical consolidation’ of the sort that rightly worries regulators when they pay attention,” said Donald Putnam, managing partner at investment bank Grail Partners in San Francisco, in an email. “My guess is that, in addition to the legal issues, there were escalating integration challenges that became visible in preparation for closing.”
Philip Stefano, equity research analyst at Deutsche Bank, said in a phone interview he “was surprised by the news,” thinking the deal was still “likely to go through,” even with the Justice Department lawsuit.
Mr. Stefano speculated that Aon and Willis Towers Watson tapped out of the deal not because an agreement with the Justice Department couldn’t be made eventually, but that it would take too long to come to an agreement, and that being in a “period of limbo” for such an extended and indefinite period just wasn’t worth it.
“It’s tough to be in a ‘will they or won’t they’ scenario, and the uncertainty was impacting their employees and their business,” Mr. Stefano said, adding: “The question in my mind is what does Willis Towers Watson do moving forward? How do they reinvigorate confidence in this company now that it’s a standalone competitor?”
Meyer Shields, a managing director and equity research analyst at Keefe, Bruyette & Woods, wrote in a research note issued to clients that he was “very surprised by this news since (he) thought that Aon’s senior management team would be able to extract significant value from even a partial net buy of WLTW’s assets.”
Mr. Shields added that although “both companies have lost talent,” his firm sees “more go-it-alone headwinds at WLTW than at Aon because of perceived CEO uncertainty at WLTW.”
“Aon’s just-announced CEO/CFO contract extensions give us enormous comfort in it rapidly regaining its footing in what remains a positive cycle,” Mr. Shields said in the note.
