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The Aon-Willis deal falls apart, leaving questions about brokers' prospects



In view of antitrust issues, Aon PLC announced on Monday that it would terminate its agreement to buy rival Willis Towers Watson PLC, raising questions about which companies will benefit or suffer in the wake of the failed deal.

Aon will pay a $ 1 billion split fee and lose the opportunity to skip Marsh & McLennan Cos. Inc. and become the world's largest broker but will probably quickly return to its previous strategy of aggressively managing expenses and increasing its business, say analysts.

Willis, which has lost a steady stream of staff since the $ 30 billion deal was announced in March last year, is likely to use part of the interruption fee to try to build its business, but it also faces questions about its long-term leadership, they say.

Arthur J. Gallagher & Co., which had agreed to purchase significant slices of Willi's business to alleviate antitrust issues raised by European regulators, will lose a good opportunity to significantly expand its business on

Under Currently, Marsh McLennan says they have been recruiting many Aon and Willis employees over the past 1

5 months.

The decision to close the deal came a month after the US Department of Justice sued to block the deal, saying the merger would reduce competition in several areas, including large corporations. A trial over the suit was scheduled to begin in November.

In a video for Aon staff released on Monday, CEO Greg Case said the case would have lasted until 2022.

"The demands of the U.S. Department of Justice would have stifled innovation and destroyed our customer service capabilities," Case says. “At best, the DOJ's perspective represents a fundamental misunderstanding in the market; in the worst case, our combination of bad timing and other factors was out of our control.

In a statement, US Attorney General Merrick B. Garland stated that the termination of the deal would help maintain competition in the real estate sector.

"American employees and retirees rely on reliable care and retirement plans provided by their employers," he said. "Many of these employers, in turn, rely on insurance brokers such as Aon and Willis Towers Watson to handle the complexity of these health and retirement benefits.

" Companies also rely on Aon and Willis Towers Watson to compete for the majority of their risk management portfolio, including property and accident insurance. The decision to abandon this anti-competitive merger will help maintain competition in insurance intermediation. "

Other regulators, including the European Commission, had approved the deal after Aon and Willis agreed to sell parts of their companies to Gallagher and others. [19659002] Before the Aon-Willis deal, antitrust regulators showed little interest in the insurance brokerage sector, so in the future there may be some "incremental scrutiny" of insurance-related mergers, says J. Paul Newsome Jr., Chicago-based stock manager at Piper Sandler & Co .. But most brokerage deals are small and should not give rise to antitrust problems, he said.

It is still unclear why Aon decided to close the deal was a better way than to settle with the DOJ, said Meyer Shields, Baltimore-based CEO of Keefe, Bruyette & Woods Inc.

"I do not know "How to pay out a billion dollars in the long run maximizes the value for Aon, and I'm very surprised," he said.

Aon's management team has historically been very successful in managing costs and the Willis business offered a significant opportunity to add small and medium-sized commercial accounts, separate from the big business Aon-Willis may have had to sell. to secure DOJ approval of the deal, Shields said.

Willis already had significant funds in the balance sheet available for the repurchase of shares, so the division fee can be used for other purposes.

"Rebuilding the pipelines is not cheap and will require a lot of capital," he said.

In his second quarter with analysts last week, Marsh McLennan stated that it had greatly increased the number of people it hired from Aon and Willis since the merger. was announced.

In a scenario scenario, Willis is likely to use $ 1 billion in revenue from Aon, along with cash on hand, to initiate a restructuring / retention plan and repurchase of up to $ 2 billion in shares, C. Gregory Peters urged. Director, Equity Research, in St. Petersburg, Florida-based Raymond James & Associates said in a note June 22.

In a statement on Monday, Willis said it had already added $ 1 billion to its $ 500 million share repurchase program following the announcement of the termination of the agreement. The broker said it would host an investor day on September 9.

Willis also expects to use the significant capital generated by the cash flow from operating and non-operating activities to ", among other things, increase its investments in organic and inorganic growth opportunities over the next three years," says the broker. Willis' biggest issue is its plan for CEO succession, as John Haley was expected to retire when the deal with Aon ended, Elyse Greenspan, CEO, stock research, insurance, at Wells Fargo Securities LLC in New York, said in a note Monday. is expected to report results for the second quarter on August 3.

Willis amended Haley's contract in June 2020 to keep him with the company until its business combination with Aon enters into force. mandate expires according to a filing from the Securities and Exchange Commission on June 10, 2020.

Julie Gebauer, Head of Human Capital and benefits at Willis, was generally regarded as the most likely successor to Mr. Haley before the proposed deal with Aon. Gebauer was appointed CEO of Health, Wealth and Careers and Head of Strategy at the operations side of the combined Aon-Willis.

Aon announced Monday that it has extended its employment contracts with Case and Chief Financial Officer Christa Davies for another three years until April 2026.

Gallagher had pre-financed its proposed purchase of a significant portion of Willis Re and other Willis assets but stated that it would use the funds to buy back shares if the deal did not go through

Gallagher, who has a long history of buying smaller rivals, misses an opportunity to significantly expand its business with the termination of the Aon-Willis deal but will likely continue to grow through smaller acquisitions, says Mr. Shields av. KBW.

In late trading on Monday, Aon's share price rose by about 8%, while Willis fell by about 9% and Gallagher by about 2%.


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