EU signals approval for Aon-WTW deal but with conditions
While the deal is moving along in Europe, U.S. regulators could stall its momentum.
The European Commission has approved the merger of Aon and Willis Tower Watson (WTW), contingent on further divestments from both firms. The deal, however, still hinges on regulatory approval from other nations, including the U.S.
“This is a major step that demonstrates continued progress toward obtaining regulatory clearances for the proposed combination,” the insurance companies shared in a joint statement. “Both firms operate across broad, competitive areas of the economy and believe this approval affirms that our proposed combination will accelerate innovation on behalf of clients, creating more choice in an already dynamic and competitive marketplace.”
The commission’s investigation, which included information and feedback from European insurance customers and competitors of Aon and WTW, found competition concerns in reinsurance brokerage services, pension administration services in Germany and commercial risk brokerage services.
Concerning the final of the three, the commission noted only a limited number of brokers “with a credible presence in Europe” can handle large, complex commercial risks. In addition to Aon and WTW, Marsh was singled out as the other member of the “Big Three” in the market.
Addressing these concerns, it has been proposed that Aon find a suitable buyer for its entire German retirement benefits consulting and pension administration businesses and its German investment solutions business.
The proposal also recommends the following divestitures from WTW:
- All commercial risk brokerage country organizations in France, Germany, Spain and the Netherlands.
- The U.K. cyber risk brokerage business.
- A substantial set of additional customer contracts and personnel in several EEA countries and internationally.
- All brokerage businesses for space and aerospace manufacturing risk classes.
- WTW’s entire global treaty reinsurance (Willis Re) and facultative reinsurance (Global Fac) brokerage organization.
Concerning the reinsurance and commercial risk businesses, a market test was performed and European customers identified Gallagher as the next closest competitor to the aforementioned “Big Three.” As a result, Gallagher was determined to be the best purchaser of those business units. However, the commission still has to formally assess and approve Gallagher as a suitable purchaser of the divested business.
“European companies rely on brokers to obtain the best possible solutions to manage their commercial risk. Aon and Willis Towers Watson are leading players in the insurance and reinsurance brokerage markets,” Margrethe Vestager, the European Commission executive vice-president in charge of competition policy, said in a release. “The remedy package accepted by the commission ensures that European companies, including insurance companies and large multinational customers, will continue to have a good choice and good services when selecting a broker suitable for their needs.”
DOJ steps in
The European Commission noted it conducted its investigation in “close cooperation” with other competition authorities, including the U.S. Department of Justice (DOJ), which threw up an objection to the deal by filing a civil antitrust lawsuit in June.
The DOJ stated the combination of Aon and WTW would create a “broking behemoth,” while threatening to eliminate competition, raise prices, and reduce innovation for American businesses, employers and unions.
Concerning the competition fears, the DOJ’s complaint (filed June 16) alleges the proposed remedies were inadequate to protect U.S. consumers, specifically calling the proposed divestitures in health benefits and commercial risk broking for the U.S. market “wholly insufficient.”
Aon and WTW, in a combined statement, relayed their disagreement with the DOJ’s decision, adding the lawsuit “reflects a lack of understanding of our businesses, the clients we serve and the marketplaces in which we operate.”
The DOJ’s objection came more than a week after Aon announced it would sell its U.S. retirement and Retiree Health Exchange business units.
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