The European Commission has opened an in-depth investigation to assess the proposed acquisition on Willis Towers Watson (WTW) by Aon, under the EU merger regulation. The commission is concerned that the proposed transaction could significantly reduce competition in those markets. Aon and Willis Towers Watson are both leading companies in the markets for commercial risk brokerage services, re-insurance brokerage and provision of retirement and health & welfare services to commercial customers. Executive vice president Margrethe Vestager, responsible for competition policy, said: “Aon and Willis Towers Watson are two leading companies in the market for insurance and re-insurance brokerage. They help companies with their risk management and with finding the right insurers for their needs.” Vestager added: “We have opened an in-depth investigation to assess carefully whether the transaction could lead to negative effects for competition, less choice and higher prices for European customers in the commercial risk brokerage market.” The commission’s initial market investigation identified a number of concerns in relation to the supply of commercial brokerage services especially to large multi-national customers, who depend on brokers with a high level of expertise and a global presence. It suggested that the transaction could reduce competition within brokerage services to large multi-national customers in the risk classes property and casualty, financial and professional services, credit and political risk, cyber and marine. Another concern of the commission was around the brokerage services to customers of all sizes for space and aerospace manufacturing risks as well as in a few additional risk classes in specific national markets. The commission said Aon and WTW “are two of the very few brokers that are able to provide these services on a multi-national scale”. In addition, the commission said it will “further examine” markets where both Aon and Willis Towers Watson are active. These include the provision of reinsurance brokerage services, which comprises the mediation of risks between insurance and reinsurance companies. The transaction would combine two of the three leading reinsurance brokers and thereby may reduce choice for insurance companies placing their risks with reinsurance companies. The second area focuses on the provision of consulting and administration services to companies regarding the retirement, health and welfare schemes offered to their employees. During the initial investigation, the commission has been closely cooperating with competition authorities around the world and has stated it will continue this cooperation during the in-depth investigation. The transaction was notified to the commission on 16 November 2020. Aon and Willis Towers Watson have decided not to submit commitments during the initial investigation to address the commission's preliminary concerns. In a statement, Aon confirmed the European Commission has initiated a Phase II Review of combination with WTW. Accoridng to Aon, the review is a common next step in the review process for a transaction of this size and complexity under EU Merger Regulation and the firm remains on track to close the combination in the first half of 2021. Aon said it remains “confident of a positive outcome without any divestitures”, stating that the firm will continue to work closely with all the relevant regulators, including the EC. “The firm looks forward to continuing its dialogue with the EC throughout the Phase II review process,” Aon added. The commission now has 90 working days, until 10 May 2021, to take a decision. It explained that the opening of an in-depth inquiry does not prejudge the final result of the investigation. Aon announced its intention to buy WTW in March in an all-stock transaction with an implied combined equity value of approximately $80 billion. An investigation was launched in May by Bragar Eagel & Squire, a US stockholder rights law firm, into whether the board members of WTW breached fiduciary duties or violated the federal securities laws in connection with the company’s proposed merger with Aon. But in August, proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis & Co recommended the shareholders of both Aon and WTW to vote in favour of the proposed combination. In its independent report, published on 7 August, ISS said the strategic rationale of the merger is “sound”. ISS also highlighted that Aon and WTW “have complementary businesses and client bases across geographies and client segments, which may provide the potential for revenue upside”. Glass Lewis described the proposed merger in its 10 August report as “strategically and financially compelling and structured in a reasonable manner which impacts an acceptable valuation and ownership split for WTW shareholders”. A special meeting of Willis Towers Watson shareholders ordered by the High Court of Ireland and the extraordinary general meetings of the shareholders of both Aon and Willis Towers Watson took place on the 26 August, where all proposals necessary to complete their combination were approved. The deal, which is scheduled to close in the first half of 2021, would see the combination of two of the world’s largest insurance brokers. Upon the closing of the combination, Willis Towers Watson shareholders will receive 1.08 Aon shares in exchange for each Willis Towers Watson share they held immediately prior to the closing. The combination is expected to close in H1 2021, pending customary regulatory and other closing conditions. The combined company will be named Aon, maintaining its operating headquarters in London. It will be led by Greg Case, Aon’s CEO, and Aon’s chief financial officer Christa Davies, along with a leadership team from both organisations. As part of the deal, Willis Towers Watson’s CEO John Haley will take on the role of executive chairman with a focus on growth and innovation strategy. The deal was announced a year after Marsh & McLennan Companies completed the acquisition of Jardine Lloyd Thompson Group for $5.6 billion in fully diluted equity value.
