Published on Jun 03, 2021
Aon (AON) has proposed to DOJ staff an offer to divest two pieces of its health benefits business to address the department’s antitrust concerns with the insurance brokerage’s planned $30 billion buyout of rival Willis Towers Watson (WLTW), sources familiar with the matter said.
But as with previous offers Aon has made to resolve DOJ’s remaining concerns, the department has remained mum on whether the divestitures would respond to its questions about the deal, the sources said. Those other DOJ concerns include Aon’s and Willis’ overlaps in reinsurance broking, insurance broking, retirement offerings and other services for multinational clients.
Aon has agreed to divest the group pharmaceutical purchasing and claims auditing services of its health benefits consulting business, the sources said. These services are used by large companies to secure lower prescription drug prices for their employees and improve their health insurance claims processes.
These proposed divestitures, which haven’t been disclosed publicly, are in addition to a growing list of assets Aon has announced it would sell to gain DOJ’s signoff for the Willis deal. Aon today said it would divest for $1.4 billion its U.S. retirement consulting and retiree health exchange businesses to two separate buyers. Previously, it unveiled an agreement to divest for $3.6 billion a slew of reinsurance and broking assets to rival Arthur J. Gallagher (AJG).
DOJ staff, Aon and Gallagher have been talking for months about the agency’s continuing reservations about the merger. But sources said the department hasn’t signaled in the discussions whether the companies need to give up more or when it plans to decide whether to clear the deal or sue to block it.
DOJ’s antitrust division is operating under an acting chief, and some attorneys speculated that the lack of a Senate-confirmed leader could be delaying decision-making on this and other proposed mergers the department is reviewing.
Other attorneys, however, said that the reticence of department staff and leaders toward the merging parties and industry participants isn’t due to DOJ’s leadership situation. The department in reviewing past deals has assumed a poker-faced posture when evaluating complex proposed remedies.
The stance allows DOJ maximum flexibility in making a decision on the Aon/Willis transaction and is in line with its dual-track approach to the deal, the attorneys said. While seriously considering Aon’s proposed divestitures, staff also is stepping up trial preparations in case the department decides to sue to block the deal.
Spokespeople for DOJ, Gallagher, Aon and Willis declined to comment.
Health benefits proposal. On the health benefits front, Aon is offering two substantial businesses that help companies provide health benefits to their employees, said an industry executive who requested anonymity.
The “pharmacy coalition” services Aon would divest allow large companies to join a group that enables them to negotiate with pharmacy benefit managers (PBMs) to jointly purchase prescription drugs for the lowest price possible.
With its auditing business, Aon health benefits consulting employees closely scrutinize insurance claims submitted by a company’s employees to see if they’re fraudulent, wrongly coded or shouldn’t have been approved.
Both services are “integral to delivering health care systems” at large companies, the health care executive said.
But the divestitures would still leave considerable overlaps in Aon’s and Willis’ more high-end consulting services that companies rely on for long-term and wellness strategies; data analytics; and to determine if they can be a financially viable self-insurer to their employees, said the executive, a deal critic.
“If you reduce the number of [health benefits] consultants out there, you reduce innovation as a whole,” the executive said.
Still, Aon’s purchasing coalition and auditing services will attract potential bidders, the executive said.
J. Patrick Gallagher, chairman, president and CEO of Gallagher, has said that the company’s divestiture agreement with Aon has an “accordian feature” that would allow it to purchase businesses generating up to $200 million in revenue that DOJ might find problematic for the merged company to retain.
Also, benefits services provider Alight Solutions, which has agreed to purchase Aon’s Retiree Health Exchange business, would be a good buyer for the assets, the executive said.
Buyers’ suitability. While not tipping its hand, DOJ staff is delving into the proposals Aon has made. In multiple meetings, staff has pressed the parties about whether the divestitures would enable Gallagher to restore competition in brokerage services for large multinational clients, sources have said.
DOJ will do the same in evaluating the suitability of Alight and private equity firm Aquiline Capital Partners, which has agreed to buy Aon’s retirement consulting arm.
Aquiline, in particular, could attract DOJ questions. The London and New York-based firm reports $6.4 billion in assets under management, with focus areas in financial services, fintech and business services and software companies.
Financial acquirers have in recent years drawn antitrust agency skepticism, with outgoing FTC commissioner Rohit Chopra a particularly harsh critic of the industry. In large part, the concern of Chopra and others is the result of private equity buyers being involved in a number of high-profile agency remedy failures.
Chopra has accused private equity firms of loading up acquisition targets with debt in order to pay out dividends—a short-term strategy that hampers the businesses’ long-term competitiveness.
That said, DOJ as an official policy matter is open to financial acquirers. The antitrust division’s merger remedies manual, most recently updated in September, announced that the “same criteria” would be used to evaluate strategic and private equity purchasers.
“Indeed, in some cases a private equity purchaser may be preferred,” the manual added, citing financial buyers’ potential advantages, including flexibility in investment strategy.
It’s not clear whether the Biden administration’s antitrust division will retain the Trump administration’s position on the issue, given the Democratic Party’s relatively more skeptical view of private equity.
But Aquiline will almost certainly face DOJ questions about its incentives to compete over the long term or whether it has the industry expertise necessary to compete effectively from day one.
On the latter front, the firm will no doubt point to its chairman and CEO Jeff Greenberg. He’s the former chairman and CEO of Marsh & McLennan (MMC), the world’s largest insurance broker, and the third member—alongside Aon and Willis Towers Watson—of the industry’s Big Three.
But Greenberg has something of a checkered history and founded Aquiline in 2005 shortly after resigning as Marsh’s CEO. That departure came fewer than two weeks after then-New York Attorney General Eliot Spitzer brought a series of bid-rigging and price-fixing charges against the brokerage. Spitzer accused Marsh of conducting sham bids that steered coverage to insurers based on kickbacks, rather than on whether they offered the best deal.
Spitzer, in announcing the charges, said that Greenberg had misled the AG’s office during the investigation’s early stages. Spitzer pushed for his ouster in exchange for settling the charges.
“The leadership of that company is not a leadership I will talk to and not a leadership I will negotiate with,” Spitzer said in discussing settlement prospects at the time.
After Greenberg’s exit, Marsh ultimately settled the Spitzer lawsuit for $850 million.
Perhaps unsurprisingly, given Greenberg’s background, Aquiline is also in some cases a direct competitor to Aon and Willis. For example, the firm in 2020 closed an investment in Quintes Holding, a Dutch insurance broker, and in 2019 agreed to acquire Relation Insurance Services, one of the largest independent insurance brokers in the U.S.
An Aquiline spokesperson didn’t respond immediately to a request for comment.
Separate businesses? Buyer suitability aside, DOJ will also consider whether Aon’s private retiree health exchange is severable from the company’s broader health benefits broking business. In advising companies on health benefits structures, Aon and Willis Towers Watson brokers and consultants sometimes suggest that firms move their retirees to a benefits exchange.
From that perspective, Alight’s plan to operate a retiree exchange business divorced from a top-tier health benefits consulting practice could draw DOJ questions.
Alight also has a history of private equity ownership. The firm, formerly Aon’s benefits administration and human resources process outsourcing segment, was in 2017 spun out to private equity funds affiliated with Blackstone in a deal valued at up to $4.8 billion.
The segment was subsequently renamed Alight, and in January reached an agreement to merge with a special purpose acquisition company sponsored by investor Bill Foley, in a $7.3 billion deal.
