Aon PLC and Willis Towers Watson PLC scrapped a $30.55 billion merger amid the prospects of a drawn-out battle with the U.S. Department of Justice, marking the third-largest insurance deal termination since 2016.
The deal's cancellation comes just over a month after the DOJ filed a lawsuit to block the merger. In its complaint, the DOJ said Aon acquiring Willis Towers Watson would violate antitrust laws, reduce competition and spur both higher prices and less innovation in the industry.
In a press release disclosing the decision, CEO Gregory Case in a statement noted that the companies had "reached an impasse" with the DOJ and that the companies' inability to reach a quick conclusion led them to kill the deal. Attorney General Merrick Garland in a statement said the merger's termination will "help preserve competition in insurance brokering."
According to an S&P Global Market Intelligence analysis, the only two larger insurance deals announced since 2016 that failed to close were the aborted merger between Anthem Inc. and Cigna Corp. and the abandoned Humana Inc./Aetna deal. Both of those managed care transactions were scrapped in 2017 after long antitrust disputes.
Both Aon and Willis Towers Watson had agreed to divestitures of parts of their businesses, including a sale of Willis Re and a set of Willis Towers Watson assets to Arthur J. Gallagher & Co. for $3.57 billion, to help facilitate regulatory approval around the world.
The Gallagher transaction was dependent on the megamerger reaching completion; it was terminated hours after the Aon-Willis announcement. That deal becomes the fifth-largest failed insurance M&A deal since 2016, just ahead of the $2.75 billion agreement between Genworth Financial Inc. and China Oceanwide Holdings Group Co. Ltd. that was called off April 6.
Kelli Howard, Gallagher's global public relations director, in an email said the company has been focused on its "proven strategies to create shareholder value" during the deal process.
'Dangerous' delay for Aon
Case reportedly said in a speech to Aon employees that he was confident that the company could have won in court. He also noted in his public statement that the deal had been approved in Europe.
But Craig Wildfang, a partner at Robins Kaplan LLP, said EU antitrust enforcers and some EU member state antitrust enforcers have actually taken much more aggressive positions in recent years. He said the DOJ's decision was not "out of step" with other antitrust enforcement players.
"I think it's more getting in line," he said.
Case reportedly went on to tell Aon employees that the legal fight with the DOJ would have stretched well into 2022. Win or lose, Wildfang said the side effects of protracted litigation are harmful to the businesses involved.
"The uncertainty of going, a year or more, perhaps, without knowing whether the deal is actually going to get approved or not, those are real world issues," he said. Even if a company thinks it has a fair chance of succeeding in court, "winning a year from now just might not be that attractive to them."
KBW analyst Meyer Shields in an interview said that one of Aon's considerations may have been freeing up its staff to pursue opportunities at a "fantastic time" for the insurance industry that could otherwise have gone to rivals.
"No matter how well designed any integration is, it's going to be distracting and you have to look inward," he said. He also noted that delay over mergers "is very dangerous in this business, especially with an uncertain workforce."
While he was surprised that Aon walked away from the deal given management's record of extracting value from mergers, Shields said Aon may have seen less upside from continuing the fight than he had assumed.