Published on Jun 01, 2021
As DOJ’s review of Aon’s (AON) proposed Willis Towers Watson (WLTW) buyout enters its late stages, the department is pursuing a dual-track strategy, engaging in settlement talks with the insurance brokerages while stepping up trial preparations in case it decides to challenge the $30 billion deal, sources familiar with the matter said.
Within the last several days, DOJ has sounded out third parties about testifying against the merger in court, one of the sources said. One deal opponent is preparing an executive in the event the department requests his presence on the stand, a second source said. The DOJ team of around 20 staff attorneys and economists working on the deal includes litigators, sources said.
At the same time, DOJ has been seriously considering Aon’s offer to divest for $3.6 billion a slew of insurance and reinsurance broking assets since at least March, when media reports of the package first surfaced, sources said. Department staff has met multiple times with representatives of the merging companies and Arthur J. Gallagher (AJG), the proposed asset buyer, the sources said.
Chief among the department’s questions at these meetings is whether the divestitures would establish Gallagher as a strong option for multinational insurance broking customers, according to sources.
Spokespeople for DOJ, Aon, Willis and Gallagher declined to comment.
DOJ’s review has extended over 14 months, and it’s unusual, but not unheard of, for the department at such a late stage to continue actively building a case while simultaneously talking with the merging parties about a proposed settlement. The department took that approach when negotiating a complex behavioral remedy that led to its 2011 clearance of Comcast’s (CMCSA) joint venture with NBCUniversal.
But the process doesn’t always lead to settlements: DOJ spent months entertaining Halliburton’s (HAL) divestiture proposals before suing in 2016 to block the oil-field services company’s planned takeover of rival Baker Hughes (BKR).
The dual-track strategy offers DOJ several advantages in the Aon/Willis case. Aon developed the Gallagher divestiture proposal without much direct input from DOJ, sources said, so the department’s continued litigation focus gives it the option to sue if the offer doesn’t address its myriad concerns with the transaction.
The threat of a suit also provides an incentive for the parties to offer additional divestitures if necessary to resolve outstanding DOJ concerns. Some deal opponents have told DOJ staff that the Aon proposal wouldn’t put Gallagher on the same footing as its two larger rivals—the merged company and Marsh & McLennan (MMC)—in courting multinational broking clients, sources said.
The opponents also have stressed to DOJ that the remedy wouldn’t address all the transaction’s competitive harm to the reinsurance broking industry, the sources said.
The remedy offer also does nothing to address Aon’s and Willis’ large overlap in health benefits consulting services. Numerous industry participants said that large companies heavily rely on Aon, Willis and Marsh’s Mercer for these services, and that the Big Three’s rivals are too small to serve as viable competitive options.
Aon’s reported plans to divest Willis’ pension actuarial and retirement exchanges businesses does little to resolve the health benefits issue created by their transaction, deal critics told The Capitol Forum.
“That’s like McDonald’s merging with Burger King and selling off the chocolate chip cookies,” said a deal critic who asked for anonymity.
Giving department options. Staff’s simultaneous vetting of the remedy and trial preparation gives the department options in making what will be the Biden administration’s most significant merger decision so far. For now, that decision rests with acting Assistant Attorney General Richard Powers since President Joe Biden hasn’t nominated anyone as DOJ antitrust chief.
Even if Biden tapped someone soon for the position, the Senate is unlikely to confirm a nominee for months. At best, a nominee could put in place a deputy in the antitrust division who could help guide the department’s review to a resolution, taking some pressure off Powers, a career government prosecutor.
In considering how to proceed on Aon/Willis, DOJ will have to account for European Commission competition head Margrethe Vestager’s support for the remedy package, particularly regarding its impact on the broking services for multinationals, antitrust lawyers said.
Under its remedy offer, Aon would divest broking teams in space and aerospace as well as insurance broking operations in France, Spain, Germany, the Netherlands and Bermuda.
Additionally, Aon would divest some accounts overseen by Willis’ San Francisco and Houston offices, and broking services for financial instruments exchange (Finex), and property and casualty insurance in continental Europe, the UK, Brazil, Hong Kong and the U.S.
These services are focused on multinational companies based in Germany, France, Spain and the Netherlands. Gallagher would take over managing Finex accounts for multinational companies headquartered in the UK.
Aon and Willis are working with the EC, which plans to make its final decision on the deal this summer. The Australian Competition and Consumer Commission last week postponed the date for announcing the findings of its review of the deal because it’s “awaiting further information from the parties.”
New Zealand’s Commerce Commission last week also delayed its decision on the transaction until July 2.