Willis Towers Watson seen as getting worse end from Aon deal collapse

Willis Towers Watson PLC needs a new strategy, new personnel and possibly a new CEO after its planned $30.55 billion merger with Aon plc fell apart.

Before the deal was announced in March 2020, CEO John Haley had been due to retire at the start of this year. When the deal was called off due to U.S. antitrust concerns, Aon extended the contracts of CEO Greg Case and CFO Christa Davies for nearly five years. Haley's term as head of Willis Towers Watson will expire on Dec. 31 as per the terms of his amended contract.

"No one knows" what Willis Towers Watson's strategy will be going forward and how it will deal, for example, with the talent it lost while going through the merger process with Aon, said Keefe Bruyette & Woods analyst Meyer Shields. Willis Towers Watson must now try to rebuild its workforce, which Shields said was "certainly limping," even as shareholders push the company to raise its profit margins to levels comparable to Aon and Marsh & McLennan Companies Inc.

A Willis Towers Watson spokesperson said the company is not commenting on its "next steps" prior to its Sept. 9 investor day. The broker on the same day the merger was canceled announced that its board increased the company's existing share repurchase program by $1 billion, the same figure Aon must pay to its former merger partner as a termination fee. Nevertheless, Willis Towers Watson's stock tumbled nearly 9% on the day the deal fell apart, while Aon's stock gained more than 8%.

'Survivable' disruption

Aon will not escape entirely unscathed. It has to pay out that termination fee, and Piper Sandler analyst Paul Newsome noted that it too will have to wrestle with employee retention issues caused by the deal. That said, he sees that problem as a manageable one.

Though Aon was expecting cost savings from the merger, Newsome in a research note said Aon could continue making cost savings through restructuring. KBW's Shields agreed that Aon's disruption was "entirely survivable" and the company would be "more than fine."

The deal's termination also affects Arthur J. Gallagher & Co., which was in line to acquire a raft of Willis Towers Watson businesses, including its reinsurance unit, had the mega-merger closed. With that now off the table, Gallagher was forced to miss out on a "once in a generation opportunity," Shields said. The company's current position, however, is still a "pretty good place to be," he added.

The demise of the Aon/Willis Towers Watson merger could be a boon for the brokers that were not involved in any of the transactions. When asked about the implications of the merger's collapse, Brown & Brown Inc. CEO J. Powell Brown said during an earnings call that his company is always on the lookout for good additions to its team.

"Disruption creates an opportunity," he said.