Published on Jun 10, 2021
Aon (AON) has expanded a prominent trial lawyer’s role in engaging with DOJ on its proposed $30 billion Willis Tower Watson (WLTW) buyout, indicating the insurance brokerage is preparing for litigation even as it participates in settlement talks with the department, sources familiar with the matter said.
The Aon move resembles the dual-track strategy that DOJ has adopted on the deal. A department team of around 20 focused on the merger includes staff attorneys involved in the settlement discussions, and litigators and economists working on a suit, sources have said.
In his newly enlarged role, veteran attorney Dan Wall is helping to lead Aon’s discussions with the department, the sources said. Wall, who started his career as a litigator in DOJ’s antitrust division, was one of the lead trial lawyers who successfully defended Oracle’s PeopleSoft acquisition against a 2004 suit brought by the department and state attorneys general.
The contingency planning by both Aon and DOJ for a suit reflects some uncertainty about whether the current discussions between the sides will yield an agreement that would allow the deal to close.
DOJ staff hasn’t indicated yet whether it would accept Aon’s proposal to divest a host of retirement consulting, retiree health exchange, and health benefits services businesses. Aon would sell these assets in addition to a group of insurance and reinsurance broking businesses that the company has pledged to divest to gain the European Commission support for the deal.
DOJ often closely guards its views on a company’s remedy proposals early in a merger review. But it’s unusual for the department to do so when it’s been investigating a deal for nearly 15 months—as is the case with Aon/Willis.
When the department remains tight-lipped at such a late stage, it usually has deep concerns that range across complex businesses and finds the potential impact of a company’s divestiture proposal complicated to assess, antitrust attorneys said. Both conditions exist in the Aon/Willis review, sources said.
The sources declined to say when DOJ would decide whether to accept the proposed divestiture package, ask for revisions or sue to block the transaction. As of now, agency staff is still analyzing the proposal and hasn’t reached a final conclusion, the sources said.
It’s becoming apparent that the staff’s recommendation—always an important component of DOJ’s decision-making process—will be especially key in this case. Although Richard Powers, the acting head of the antitrust division, is a well-regarded prosecutor, he has little experience with merger reviews and is likely to rely heavily on the staff’s opinion.
If Biden nominates someone soon as the division’s permanent head, that could influence the timing of DOJ’s decision, depending on how quickly the Senate confirms that person.
Spokespeople for Aon, Willis and DOJ declined to comment. Wall didn’t respond to a request for comment.
Shades of Oracle case? If DOJ decides to sue, Wall, a longtime Latham & Watkins partner, and others might be struck by some similarities between the Aon and Oracle/PeopleSoft cases.
DOJ’s case at the 2004 trial relied largely on the testimony of big corporate customers of the companies’ financial services and human resources management software. That strategy’s logic is intuitive—customers purchase the products in question and are therefore uniquely well-positioned to predict anticompetitive effects from a merger of rival suppliers.
The customers at trial complained that if the merger weren’t blocked, they likely would have to pay 10% more for this software because few alternatives to the merging companies’ products existed.
But U.S. District Judge Vaughn Walker largely rejected this testimony, concluding that the customers were stating their “preferences” rather than rigorous analysis about their ability to buy software from alternative vendors post merger.
“Unsubstantiated customer apprehensions do not substitute for hard evidence,” the judge wrote in his decision.
In the Aon/Willis review, DOJ also is concerned about large corporate customers. In this case, DOJ is focused on the harm the merger would cause sophisticated multinational companies.
The department has concluded that the merger as originally proposed would result in these companies’ options for insurance and reinsurance broking services, as well as health and retirement benefits consulting, shrinking from three to two.
But since the Oracle defeat, DOJ hasn’t built its cases so much on customer testimony. It now relies more on the merging companies’ documents, their executives’ testimony and economic analysis.
The department’s focus on company documents in the 2014 Bazaarvoice trial paid off. DOJ won the case despite Bazaarvoice offering testimony from over 100 customers supporting its merger with rival online product-evaluation site PowerReviews.
Defining markets. The Oracle/PeopleSoft and Aon/Willis cases share another similarity—the difficulty of defining product markets for large corporate customers.
In the 2004 trial, DOJ failed to convince the judge that Oracle and PeopleSoft were two of only three companies providing high-end human resources and financial management software in the U.S.
Walker said it was too difficult to define the market so narrowly, considering the factors other than price on which Oracle and PeopleSoft competed with rivals.
Similarly, one of DOJ’s biggest hurdles in trying a case against the Aon and Willis deal would be convincing a judge that a specific market exists for brokerage services geared to large multinational companies, antitrust attorneys said.
Aon can tap executives for rival Arthur J. Gallagher, the proposed buyer for many of the divested assets, to testify about how it could expand its offerings for large customers post merger.
Aon also could point to ambitious rivals such as boutique insurance broker McGill and Partners and Piiq Risk Partners, which specializes in the aerospace industry.
But DOJ could mine past comments from Willis executives to argue that large corporations generally rely on three insurance brokers—the merging parties and Marsh & McLennan.
In 2018 alone, Willis CFO Michael Burwell on more than a half dozen occasions described the company’s merger with benefits consulting giant Towers Watson two year prior as having created a “third option” for insurance broking clients.
At a September 5, 2018 conference, Burwell said that scale that the merger had given Willis the scale to compete with Marsh and Aon—“our direct competitors at the higher end of the marketplace.”