Arthur J. Gallagher & Co. announced it has terminated its May 12, 2021 agreement to acquire Willis Re and certain other Willis Towers Watson operations for $3.57 billion.
Both Gallagher and Willis Towers Watson filed statements with the Securities and Exhange Commission to announce the termination of their deal after the plug was pulled on Aon’s proposed $30 billion purchase of Willis.
Aon said the deal was terminated because it had reached “an impasse” with the U.S. Department of Justice, which had filed a civil antitrust lawsuit on June 16, 2021, to stop the merger. While Aon’s CEO Greg Case was confident of a court win, he said, the deal would have been delayed, well into 2022.
To facilitate their proposed merger, both Aon and Willis had initiated several divestitures to answer the concerns of antitrust regulators in the U.S. and Europe. All of these previously announced deals are now terminated because they were contingent on the completion of the merger.
In addition to the proposed Willis Re deal, the other announced divestitures included the sale of Aon’s U.S. retirement business to private investment firm Aquiline and its Retiree Health Exchange individual health insurance business to Illinois-based digital services firm Alight for total gross consideration of $1.4 billion. In addition, Aon agreed in May to sell its retirement and investment business in Germany.
In conjunction with its announcement, Gallagher said it plans to exercise the special optional redemption feature of its $650 million tranche of 10-year senior notes issued on May 20, 2021, which was originally intended to finance part of the purchase. (Editor’s note: In other words, this debt arrangement eventually will be canceled. However, an additional amount of $850 million was also borrowed for the Willis Re purchase, which will be maintained).
Gallagher also is evaluating opportunities to deploy its excess cash through its merger program as well as possible share repurchases.
After the Aon-Willis termination announcement on July 26, Aon’s stock prices traded up (8.21%), while WTW’s and Gallagher’s traded down at 8.98% and 1.98%, respectively.
An equity research note published by analyst Meyer Shields at Keefe, Bruyette & Woods (KBW) attributed Aon’s rise to the elimination of “near-term integration-related uncertainty.”
Although both Aon and Willis have lost talent, there are “more go-it-alone headwinds” at WTW than at Aon because of perceived CEO uncertainty at WTW, indicated KBW. Wells Fargo Securities offered similar observations in separate equity research.
“The biggest question when Willis reports earnings [on Aug. 3] is its plan for CEO succession as John Haley was expected to retire when the deal with Aon closed,” affirmed Wells Fargo Securities.
On the day the merger was terminated, Aon also announced it had extended for three years the employment agreements for CEO Greg Case and CFO Christa Davies. KBW said these agreements provide “enormous comfort” that the company will rapidly regain “its footing in what remains a positive cycle.”
All three brokers are looking at “good overall organic growth,” said Wells Fargo, noting that Willis seems very inexpensive, “given the pullback over the past month.” (The Wells Fargo note was authored by analyst Elyse Greenspan.)
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