Canadian Underwriter

How Aon and Willis are progressing on proposed merger

August 4, 2020   by Greg Meckbach

Office workstation top view with businesspeople working around M&A

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The acquisition of Willis Towers Watson plc by Aon plc is on track to close in less than a year as Aon officials don’t seem concerned the deal will be blocked by competition regulators.

“We are exactly on track with our original time period,” which is to close the deal during the first half of 2021, Aon chief financial officer Christa Davies said this past Friday during a conference call.

Aon announced the proposed friendly takeover in March. Both Aon and Willis Towers Watson have multiple offices in Canada from which they place commercial property and casualty insurance. Both are incorporated in the Republic of Ireland with head offices in London, England.

Since both are publicly-traded on the stock exchange, the companies plan to hold shareholder votes Aug. 26.

During the July 31 teleconference discussing Aon’s financial results for the quarter ending June 30, an investment banking analyst asked what makes Aon confident there will be no anti-trust issues in combining the reinsurance brokerages of the two companies.

Reinsurance brokers are not the only way primary insurers access capital, Aon CEO Greg Case suggested.

“There is a very large direct market, especially in Europe, as well as in the U.S. where the insurers go to many reinsurers directly. They also raise money from sidecars. So their access to capital has actually gone largely outside the brokerage business as opposed to within the brokerage business,” said Case.

If the deal goes through, there would be “effectively a duopoly” (between Aon and Marsh & McLennan’s Guy Carpenter unit) in reinsurance broking, Hiscox CEO Bronek Masojada was quoted as saying in an S&P Global Market Intelligence article in March.

Separately, in January, Rolling Meadows, Ill.-based Arthur J. Gallagher & Co. closed its acquisition of the two-thirds of Capsicum Reinsurance Brokers LLP that Gallagher did not already own

An acquisition by Aon of Willis Towers Watson would require approval from Irish High Court as well as competition regulators in the United States, Canada, the European Union, Australia, China, Mexico, New Zealand, Russia, Singapore, South Africa and Turkey, Aon said in an earlier securities filing.

“We have had excellent anti-trust counsel globally for quite some period of time. We feel very confident about our anti-trust approval in reinsurance in particular,” Davies said during the Q2 2020 earnings call July 31.

The board of Willis Towers Watson is recommending its shareholders vote in favour of the agreement. If it goes through, the combined company will be called Aon.

The announcement of the proposed deal came less than a year after Marsh & McLennan Companies Inc. closed its takeover of then-rival global brokerage Jardine Lloyd Thompson Group plc.

Aon reported July 31 its net income in Q2 was $411 million while revenue was $2.5 billion. During Q2 2019, Aon reported $287 million in net income on revenue of 2.6 billion. All figures are in U.S. dollars.

For its part, Willis Towers Watson reported July 30 it had net income of $102 million on revenues of $2.1 billion in the latest quarter. In the same period in 2019, Willis Towers Watson reported net income of $149 million on revenues of $2.048 billion.

Marsh & McLennan Companies topped a list of global commercial brokerages ranked this past July by A.M. Best Company Inc., with $17 billion in annual revenue. Aon and Willis Towers Watson ranked second and third respectively with $11 billion and $9 billion in annual revenue.

Willis Towers Watson was formed in 2016 through the $18-billion merger of commercial insurance brokerage Willis Group Holdings plc and consulting firm Towers Watson & Co. What Towers Watson brought to the combined entity was actuarial valuation services, product development, predictive modelling, claims consulting and catastrophe modelling, among others.

Canadian senior executives include Brian Parsons, head of Willis Towers Watson, Canada and John Haas, corporate risk and broking leader.

Aon’s most senior executive in Canada is commercial risk and health solutions president Stéphane Lespérance.

If the merger closes, each Willis Towers Watson shareholder would receive 1.08 Aon shares for each of its Willis Towers Watson shares, plus cash. Aon shareholders will continue to own the same number of Aon Shares as they do immediately prior to the closing. Following the closing, existing Aon shareholders will own approximately 62.3% and existing Willis Towers Watson shareholders will own approximately 37.7% of the combined company.

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