Aon-Willis deal further investigated by the EC to address concerns over reducing competition

7 January 2021 — Daniela GHETU
The European Commission has opened an in-depth investigation to assess the proposed acquisition of Willis Towers Watson by Aon, under the EU Merger Regulation. Aon and Willis Tower Watson are both insurance and re-insurance brokers, as well as providers of other professional services to corporate customers.

The Aon-Willis merger deal was first announced in March, for a total consideration close to USD 30 billion and was expected to create the world's biggest re/insurance brokerage company with an estimated combined equity value of USD 80 billion. According Aon's statement at the time of initial announce on the planned merger, the transaction was expected to generate more than USD 10 billion in shareholder value creation from the capitalized value of expected pre-tax synergies, based on the blended 2020 price to earnings ratio of Willis Towers Watson and Aon UK on 6 March 2020, net of USD 2.0 billion in expected one-time transaction, retention and integration costs.

Executive Vice-President Margrethe VESTAGER, responsible for competition policy pf the European Commission, said: "Aon and Willis Towers Watson are two leading companies in the market for insurance and re-insurance brokerage. [...] 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."

According Aon, "the Phase II 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." The global broker stated that Aon's and Willis Towers Watson's businesses are complementary, operating across broad, very competitive areas of the economy, and reaffirmed its confidence into a positive outcome without any divestitures. Aon expected a thorough review of this combination and 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, a press release stated.

As for the European Commission, its concern is that the proposed transaction could significantly reduce competition in the markets for commercial risk brokerage services, re-insurance brokerage and provision of retirement and health & welfare services to commercial customers.

The Commission's preliminary competition concerns

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.

In particular, the Commission is concerned that the transaction may reduce the competition as regards:

  • brokerage services to large multi-national customers in the risk classes Property & Casualty, Financial and Professional services, Credit and Political risk, Cyber and Marine;
  • 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.
At this stage, the Commission considers that Aon and Willis Towers Watson are two of the very few brokers that are able to provide these services on a multi-national scale.

In parallel, the Commission will also further examine markets where both Aon and Willis Towers Watson are active, namely:

  • 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; and
  • the provision of consulting and administration services to companies regarding the retirement, health and welfare schemes offered to their employees.
The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether it is likely to significantly reduce effective competition.

During the initial investigation, the Commission has been closely cooperating with competition authorities around the world. It will continue this cooperation also 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. The Commission now has 90 working days, until 10 May 2021, to take a decision. The opening of an in-depth inquiry does not prejudge the final result of the investigation.

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