Aon bid for broker to face hurdles

UK-based Aon says it will buy Willis Towers Watson for $30bn in an all-stock deal that creates the world’s largest insurance broker but is almost certain to face regulatory hurdles.

UK-based Aon said on Monday it would buy Willis Towers Watson for nearly $30bn in an allstock deal that creates the world’s largest insurance broker but is almost certain to face regulatory hurdles.

The deal unifies the sector’s second- and third-largest names into a company worth $76bn at prevailing share prices and adds scale in a battle with falling margins and challenges ranging from the coronavirus to climate change.

“We know each other well and this came together pretty quickly,” Aon CEO Greg Case said on a call with analysts, adding that the deal was motivated by “unmet client needs”.

First mooted a year ago, the deal creates a company that will overtake market leader Marsh & McLennan in terms of value. It follows a period of brutal competition that has driven down insurance premiums even as claims continue to rise.

Aon confirmed in 2019 that it was in early-stage talks with Willis Towers before quickly scrapping the plans, without giving a reason.

Analysts said an Aon-Willis deal might have trouble clearing antitrust hurdles and Aon’s shares plunged nearly 11% in premarket trade, while Willis’s shares rose just 3.14%, though both moves came in a market hit heavily by Monday’s collapse in oil prices.

“The insurers and reinsurers are unlikely to be happy about the deal given the scale of the two players coming together,” said Investec analyst Ben Cohen. The deal terms state that Aon will be obligated to pay a fee of $1bn to Willis if the deal were to fall through.

Aon CFO Christa Davies said she was confident of getting all the “necessary approvals” for the deal.

The deal follows other moves to consolidate the global insurance business. In April 2019, Marsh sealed its own purchase of British rival Jardine Lloyd Thompson for $5.7bn, at the time cementing its position as the biggest global player.

Under the deal, Willis shareholders would receive 1.08 Aon shares, or about $232 per share as of Aon’s Friday close, representing a total equity value of $29.86bn.

The offer is at a premium of 16% to Willis’s closing price on Friday.

When the deal closes, existing Aon shareholders will own about 63% and existing Willis investors will own about 37% of the combined company on a fully diluted basis.

The deal is expected to add to Aon’s adjusted earnings per share in the first full year of the deal, with savings of $267m, reaching $600m in the second year, with the full $800m achieved in the third year.

The deal is subject to the approval of shareholders and regulatory approvals and is expected to close in the first half of 2021. Aon will maintain its headquarters in London and the combined firm will be led by Case and Aon CFO Davies.

Aon’s financial adviser for the deal is Credit Suisse Securities, and Willis was advised by Goldman Sachs.

THE INSURERS AND REINSURERS ARE UNLIKELY TO BE HAPPY ABOUT THE DEAL GIVEN THE SCALE OF THE TWO PLAYERS COMING TOGETHER