Aon-WTW merger comes down to divestment deals

The future of the proposed broker mega-merger between Aon and Willis Towers Watson (WTW) has continued to be shrouded in regulatory uncertainty as investigations into the deal have spread across the globe.

It now looks highly unlikely that the merger will be completed by the end of June, which had been the original plan when the $30bn deal was announced last year.

While the proposed deal between two of the world’s three biggest broking entities has been under scrutiny in Europe, the UK, Australia and New Zealand, April saw the Singaporean regulator and the US Department of Justice (DoJ) each decide to assess the deal on competition grounds.

The news will not only delay the timing of the deal’s closure, but also threaten to redefine the shape of the future business.

Regulatory spotlight

The two firms have been embroiled in a lengthy process with the European Commission (EC) over the impact of the merger on competition within the intermediary sector.

It has been a start-stop process so far, with the EC suspending its investigation earlier this year, saying that the information it requested had not been provided.

In April, the EC released a statement to say it had restarted the investigation, having received the commitments it had requested from the two entities.

However, this statement also revealed the EC had pushed back the timetable for the decision on whether it would allow the deal for the second time.

While the original deadline for a final determination on the deal had been set for 10 May 2021, that deadline was subsequently pushed back to 12 July. This has been pushed back yet again with a new date of 27 July now planned, delaying the ability to complete the deal into August at the earliest.

The New Zealand regulator, the New Zealand Commerce Commission, has pledged to provide its verdict on the deal on 25 May, while the Australian Competition and Consumer Commission is due to release its decision two days later.

On 9 April, the Competition and Consumer Commission of Singapore (CCCS) officially launched its consultation on the proposed merger.

“CCCS received a notification from Aon for a decision on the proposed transaction and is now assessing whether the proposed transaction would infringe section 54 of the Competition Act (Cap. 50B), which prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore,” it said in a statement.

In its notification to the CCCS, Aon said any potential crossover in services between the two brokers related to the supply of retirement benefits and human capital consulting services.

Potential problems

It has also been reported that the Antitrust Division of the US Department of Justice has contacted the two brokers to demand they dispose of certain US and Bermudian entities in order to meet their competition requirements.

It is here that the potential problems arise. For months, the market has been awash with talk as to what the merged entity would need to dispose of to soothe the anti-competition concerns of the regulators.

Sources close to the EC had intimated that the competition commission had been looking for the disposal of Willis Re, to provide greater competition in the reinsurance sector.

It is also agreed that French operation Gras Savoye is to be sold, as are a number of entities in the Netherlands, Germany and Spain.

In the specialty markets, it is believed that the cyber and FinPro units in the UK have been identified for disposal, as have WTW’s specific aerospace maintenance and space units.

There are also a number of pensions and benefits units in Europe that will need to be sold to meet the regulator’s demands.

With the Asia Pacific regulators yet to make any public statement, it is uncertain as to what - if any - regionally specific operations will be required to go if the deal is to be given the green light.

The news of the need for Aon and WTW to divest some significant operations has sparked interest from a number of smaller rivals such as Lockton, Gallagher and McGill and Partners, all of which have been following the developments closely for some time.

One London market insider told Insurance Times: “The European delay and the news of what the regulators are looking for Aon and Willis to dispose of has seen activity at both ends of the market.

“Some of the more ambitious brokers are in conversations with Willis and Aon to look to any potential deals that are there to be done.

“They believe they hold the whip hand as they understand that to get the merger across the line there are operations that need to go. They can sense there are bargains to be had given the pressure that both Willis and Aon are under to complete the deal.

“At the other end of the spectrum, broking teams are being proactive in looking for new homes. They are desperate to secure a role with a new employer on their terms rather than be part of a bigger sale.”