Aon / WTW merger cleared by European Commission

The ongoing merger between re/insurance broking giants Aon and Willis Towers Watson has cleared a significant hurdle today with breaking news of the deal’s approval by the European Commission.

The approval is described as conditional on full compliance with a substantial set of commitments offered by Aon, including the divestment of central parts of WTW’s business to rival player Gallagher.

These commitments are seen by the Commission as a key factor in preserving the competitive integrity of the European Economic Area’s business landscape and, by extension, are intended to bolster Gallagher’s position as a credible alternative to the company that will emerge from Aon’s purchase of WTW.

Despite the EC having identified a number of concerns with the combination, it’s fair to say this development represents a key stride forward in what has been a period of increased disruption and uncertainty for those involved with the transaction.

In the closing months of June, after a guarded and seemingly intense period of negotiation, the US department of Justice filed a civil antitrust lawsuit that blocked the proposed $30 billion mega-merger on the grounds that it would create a “broking behemoth” capable of eliminating competition and increasing prices.

Subsequently, a federal judge ruled out the possibility of a trail before November, and warned of further possible delays as a result of COVID-19 related backlog.

Today’s decision follows an in-depth investigation by the EC that did indeed deem the proposal, in its original form at least, as a threat to the free market.

Chief among these concerns was the impact on the provision of commercial risk brokerage services to large multinational customers based in Europe.

Aon and WTW are, along with Marsh, known as the Big Three of the brokerage industry and, with only a limited number of brokers capable of handling such large and complex risks, a further consolidation would significantly narrow an already constrained competitive landscape.

To remedy this

To address the Commission’s competition concerns, Aon offered a substantial remedy package including the following commitments:

To divest to Gallagher:

WTW’s entire commercial risk brokerage country organisations in France, Germany, Spain and the Netherlands;

WTW’s Cyber risk brokerage business in the UK;

A substantial set of additional customer contracts and personnel in a number of EEA countries and internationally;

WTW’s entire brokerage business for the risk classes Space and Aerospace manufacturing;

WTW’s entire global treaty reinsurance (Willis Re) and facultative reinsurance (Global Fac) brokerage organisation.

To divest to a suitable purchaser Aon’s entire German retirement benefits consulting and pension administration businesses, as well as Aon’s German investment solutions business.

Following the results of the market test, in which European customers identified Gallagher, the next closest competitor to the “Big Three,” as the most suitable purchaser of the commercial risk and reinsurance divestment business, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The Commission’s decision is conditional upon full compliance with the commitments.

Aon can only implement the acquisition of WTW once the Commission has formally assessed and approved Gallagher as suitable purchaser of the divestment business.

The merger would have hampered competition in particular in the risk classes Property & Casualty, Financial and Professional (FinPro) services and Cyber. Furthermore, irrespective of the customers’ size, the Commission had concerns relating to commercial risk brokerage services to customers for Space and Aerospace manufacturing risks, as well as regarding national markets in the Netherlands and Spain.

The provision of treaty and facultative reinsurance brokerage services. The Commission had concerns that the merger would have reduced choice for insurance companies since Aon and WTW are two of the three leading worldwide reinsurance brokers.

The provision of pension administration services to companies in relation to pension schemes offered to their employees for the market in Germany.

The Commission cooperated closely with several competition authorities around the world, including the US Department of Justice.



More news to follow..

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