By Noor Zainab Hussain and Carolyn Cohn
(Reuters) – Aon Plc
The deal, the insurance sector’s largest ever, unifies the second and third largest brokers globally into a company worth almost $80 billion at a time when insurers are facing rising claims and new threats from the coronavirus and climate change.
First mooted a year ago, the deal creates a combined company that will overtake market leader Marsh & McLennan
Shares in Aon fell nearly 10% and those in Willis 6% in a market suffering its worst day of trading since 2008 after a collapse in oil prices.
When asked about the timing, Aon Chief Executive Officer Greg Case told analysts on a call: “It is not about today or next week, it’s about the long term.”
“We know each other well and this came together pretty quickly.”
UK-based Aon and Willis put together large insurance deals for clients that involve a number of insurers, for anything from airlines to large sporting events.
Brokers also play a key dealmaking role in the 330-year old Lloyd’s of London [SOLYD.UL] commercial insurance market, which carries out much of its business face-to-face and insures specialist risks like oil rigs and soccer stars’ legs.
Aon and Willis also provide investment and employee benefits advice, and broker deals for reinsurers, who share part of insurers’ exposure to potential large losses like hurricanes, in return for part of the premium.
The combined entity will work across risk, retirement and health businesses. The deal will also allow the “new” Aon to offer clients services in areas like cyber, intellectual property and climate risk, executives said.
(Graphic: Aon and Willis agree largest ever insurance merger – https://fingfx.thomsonreuters.com/gfx/editorcharts/WILLIS-M-A-AON/0H001R…)
Interactive graphic on insurance deals https://tmsnrt.rs/2IJODcx
SECOND TIME LUCKY?
The deal follows Marsh’s purchase last April of British rival Jardine Lloyd Thompson for $5.7 billion.
Aon confirmed last year in March that it was in early talks with Willis Towers before quickly scrapping the plans, without giving a reason. Analysts said Aon might have trouble clearing anti-trust hurdles.
“The insurers and re-insurers are unlikely to be happy about the deal given the scale of the two players coming together,” said analyst Ben Cohen at Investec.
The deal terms state Aon must pay $1 billion to Willis if the deal falls through.
Aon Chief Financial Officer Christa Davies said she was confident of getting all the “necessary approvals” for the deal.
“We have had great counsel on the topic of anti-trust, feel really good about it,” Case said.
Willis shareholders would receive 1.08 Aon shares, or about $232 per share as of Aon’s Friday close. The offer represents a premium of 16% to Willis’ closing price on Friday.
Aon shareholders will own about 63% and Willis investors about 37% of the combined company. The deal is expected to add to Aon’s adjusted earnings per share in the first full year, with full savings of $800 million achieved in the third year, and to close in the first half of 2021.
Aon will keep headquarters in London and be led by Aon CEO Case and Aon CFO Davies. Willis CEO John Haley will become executive chairman.
Credit Suisse advised Aon, while Willis was advised by Goldman Sachs.
(Additional reporting by C Nivedita in Bengaluru; Writing by Anirban Sen; Editing by Saumyadeb Chakrabarty and Patrick Graham)