Aon and Willis Towers Watson have agreed to sell $3.6bn worth of assets to their rival Gallagher as they work to mollify European competition regulators over their blockbuster combination.
Aon struck a $30bn deal with Willis last year, hoping to create the world’s biggest commercial insurance broker by revenues. Crucial regulatory signoffs are yet to be received, particularly in Europe.
Aon and Willis announced on Wednesday that Willis would sell Gallagher assets including its reinsurance broking division Willis Re, excluding its operations in mainland China and Hong Kong.
Gallagher will also pick up Willis’s aerospace unit Inspace; its corporate risk and insurance broking businesses in France, Germany, the Netherlands and Spain, excluding Affinity; and some other parts of the group that serve certain multinational companies in those four countries.
The wide-ranging disposals also encompass Willis’s cyber business in the UK and its health and benefits business in France, Spain and Germany.
Greg Case, Aon chief executive, said the deal “demonstrates strong momentum on the path to close our proposed combination with Willis Towers Watson”.
An $800m cost-savings target for the merger — which has been a key focus of analysts in assessing the value of the deal — remained on track, Aon said.
Gallagher chief executive Patrick Gallagher said the deal “will accelerate our long-term strategy by significantly expanding our global value proposition in reinsurance, broadening our retail brokerage footprint and strengthening key niches and speciality brokerage offerings”. It would add more than 6,000 to the broker’s headcount, he said.
Gallagher said the acquired businesses generated $1.3bn in pro forma revenue in 2020 compared with its $5.2bn of brokerage revenues, and would increase the group’s adjusted earnings per share by about 10 per cent.
It plans to finance the acquisition using a combination of debt, cash and equity — the broker also announced a public offering of 9m of its shares, with a market value of about $1.3bn. Gallagher expects the integration of the businesses to take about three years and cost $350m.
Gallagher’s shares dipped 0.5 per cent in early trading. Aon’s were broadly flat, while Willis’s were up 0.6 per cent.
Aon said the deal “resolves questions raised by the European Commission and is intended to address certain questions raised by regulators in certain other jurisdictions”. The commission last month shared the remedies with other brokers in market-testing documents.
Two people who had seen the documentation told the Financial Times that the commission seemed to be pushing for a non-private equity buyer that already had a big insurance broking business, with one seeing Gallagher as the clear frontrunner.
The timeline of the merger has slipped: Aon and Willis now say they are working to complete as soon as possible in the third quarter, having previously aimed to conclude it by the end of June.
The brokers continue to pursue regulatory approvals in other countries including the US, where a separate competition review is under way.
Gallagher is already set to be the number three broker in the market assuming the Aon/Willis combination goes ahead. The deal announced on Wednesday allows it to reduce a sizeable revenue gap with its larger rivals.
It is possible Gallagher will need to “purchase additional operations” from Aon/Willis if required by regulators, the company said in a regulatory filing.