Published on Jun 15, 2021
This article has been updated to include the companies and DOJ’s arguments supporting their positions.
DOJ staff informed Aon (AON) and Willis Towers Watson (WLTW) representatives at a meeting last week that the companies’ remedy offer doesn’t sufficiently address the department’s concerns about their $30 billion merger shrinking broking options for large multinational companies, sources familiar with the matter said.
The department’s concerns span across broking services for insurance, and health and other employee benefits, the sources said.
At the meeting on Thursday, though, the two companies’ representatives gave no indication that they’d divest additional assets to get DOJ’s blessing, the sources said.
The companies have already agreed to sell a slew of insurance and reinsurance broking assets to Arthur J. Gallagher (AJG) in an effort to address global antitrust concerns with their deal. Aon and Willis also have offered to divest retirement and health and benefits-related assets.
DOJ staff voiced its ongoing concerns as the European Commission reportedly prepares to approve the merger by early next month and other countries’ enforcers are wrapping up their competition reviews of the deal in the coming weeks.
A settlement remains a possibility, the sources said. But unless Aon revises its proposed divestiture package or staff softens its demands, DOJ’s leadership—following an investigation that has continued for more than 15 months—likely will have to decide how to proceed in the next 30 days.
The parties likely will use approvals from the EC and any other jurisdictions to press DOJ to settle. But sources said DOJ staff has concluded that the market dynamics for broking services in Europe are different for large multinationals, and that the merger will result in more competitive harm to those customers in the U.S.
The Biden administration has signaled that it intends to enforce antitrust laws more aggressively than its predecessor, and the Aon/Willis deal will be the first significant test of that resolve. Antitrust observers have said they’re watching the department’s actions on the deal closely to gauge the emerging administration policy on mergers.
Spokespeople for DOJ, Aon and Willis declined to comment.
Companies’ defense. In defending their deal, the companies could argue that DOJ underestimates the success of rivals such as Gallagher, McGill and Partners, Piiq Risk Partners and Woodruff Sawyer. In the past 12 months, Piiq, which specializes in broking services for the aerospace industry, wooed Airbus from Willis and Rolls-Royce from Marsh & McLennan, according to insurance trade publications.
Dan Wall, a veteran litigator who has taken on an expanded role in leading Aon’s negotiating team, could remind his government counterparts about a DOJ court loss in which he played a prominent role.
In 2004, Wall helped lead the trial team that beat DOJ’s challenge of Oracle’s proposed buyout of software rival PeopleSoft. In his ruling, the judge in the case said large corporate customers hadn’t been persuasive in testifying that the deal would result in anticompetitive harm because they preferred to keep PeopleSoft as a buying option.
Still, in response to European and U.S. competition concerns, Aon and Willis have offered to sell Gallagher Willis’ insurance broking teams in space and aerospace, as well as insurance broking operations in France, Spain, Germany, the Netherlands and Bermuda.
In addition to some accounts overseen by Willis’ San Francisco and Houston offices, the companies would divest broking services for financial instruments exchange (Finex), and property and casualty insurance in continental Europe, the UK, Brazil, Hong Kong and the U.S.
In defending the assets package, Aon and Willis could stress that Gallagher is strongest in the U.S. and that its retail brokerage business generates more revenue than Willis in the country.
DOJ’s case. But the department could point out that most of Gallagher’s revenue is from mid-tier customers and that Willis focuses on larger companies.
DOJ staff also continues to be concerned that multinational clients will have a dearth of options post merger for health and benefits consulting. Although Gallagher and other rivals are active in this sector, the Australian Competition & Consumer Commission (ACCC) has said the deal would likely “result in the combination of two of the three major providers” in the country. It’s a view likely reflective of DOJ staff’s about the deal’s impact in the U.S.
The ACCC said customers that could be especially affected by the transaction were those who required global coordination of such services.
In past statements, Willis executives have stressed how their company has become a “third option” in both health and benefits as well as insurance broking for these big customers.
DOJ is more likely to build a case on such past comments, and internal Aon and Willis documents. U.S. antitrust enforcers have shied away from relying heavily on customer testimony since the Oracle/PeopleSoft loss.
This new strategy helped the FTC prevail in Staples/Office Depot case in 2016 and Sysco/US Foods the year prior.
In both those cases, the agency said the mergers would harm large multi-regional corporate clients. But in those suits, the FTC was basing their case on these customers having fewer options to buy products such as paper or food.
If DOJ decides to sue on Aon/Willis, it would be defining a market for supplying brokerage services rather than goods. Since DOJ began reviewing the deal, sources have said the companies have argued that these services depend on a workforce of highly sophisticated experts, who move among rival brokerages.