More divestitures more likely than collapse of Aon / WTW deal, analysts say
As the US Department of Justice (DOJ) pursues to block the combination of global re / insurance brokers Aon and Willis Towers Watson (WTW), KBW analysts see further divestments as more likely outcome than full collapse of the agreement.
Previous reports that the DOJ was likely to approve the $ 30 billion mega-merger appear to have been false, as the US regulator seeks to block the deal on the grounds that it threatens to eliminate competition and increase prices. price, among other concerns.
In a joint statement, Aon and WTW expressed their disagreement with the decision. But as analysts explained, their response did not include any specific course of action, which analysts said could include litigation, an additional divestiture, or abandoning the deal.
“We can’t predict the likely success of a litigation, but we believe further assignments are more likely as AON abandons the deal and pays WLTW the $ 1 billion break fee,” analysts say.
Currently, KBW sees “very little chance that the deal will be broken absolutely,” a move that would see Aon pay WTW high termination fees.
At Aon, analysts believe that senior management is quite capable of extracting significant value from a transaction generating revenues well below WTW’s $ 9.35 billion, and believe that the management structure and employees of the broker remain largely intact.
However, analysts are concerned about WTW as the company has lost a large number of talent following the merger announcement, with “no obvious successor to current CEO John Haley.”
Despite their concern, a complete abandonment of the deal is the least likely outcome, analysts suggest, with further divestments to allay regulatory concerns in the United States seen as more likely.
As we wrote earlier, one of DOJ’s primary concerns is Aon and WTW’s over 40% domestic market share in P&C insurance and large account employee benefits brokerage.
Critically, analysts say, the DOJ acknowledges that proposed divestitures in the United States, including Willis Re, its retirement business in the United States and the Aon Retiree Health Exchange, would alleviate its concerns in those markets.
“We infer that additional divestments of P&C and EB of large accounts would also satisfy the DOJ,” analysts say.
Offloading large blocks of large account brokerage would likely be a challenge, but KBW notes that previously announced divestitures of WTW’s offices in San Francisco and Houston suggest it can be done.
“More importantly, we are seeing many potential strategic buyers – including publicly traded and privately funded insurance brokers – for such blocks, which could translate into better selling prices despite the constraints of obvious times. “
Regarding the potential for litigation, KBW says it doesn’t know how to predict the likely outcome of Aon’s challenge to the DOJ in court, but warns that “the litigation looks very likely to prolong the uncertainty of the deal, which would likely lead both employees and customers to seek stability elsewhere.