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Aon, Willis Towers Watson deal followed lengthy courtship: Filings

Aon Center

Aon PLC’s bid to buy rival brokerage Willis Towers Watson PLC will have been more than two years in the making if it is completed as scheduled next year, regulatory filings show.

Aon CEO Greg Case floated the idea of combining the businesses soon after Aon’s main rival Marsh & McLennan Cos. Inc. announced plans to buy Jardine Lloyd Thompson Group PLC in September 2018, according to a Monday filing with the U.S. Securities and Exchange Commission.

After more than a year of back-and-forth negotiations, which included tentative discussions, delays after press leaks and haggling over the price that gyrated between Aon seeking a merger of equals to Willis Towers Watson asking for a more than 20% premium on its share price, Aon announced its plan to buy Willis Towers Watson in March.

According to the joint proxy filing, Mr. Case told other Aon directors that he was interested in discussing a potential deal with Willis Towers Watson at a regular Aon board meeting in November 2018.

A deal between the world’s second and third largest insurance brokers would catapult them ahead of Marsh & McLennan, the longtime largest brokerage, which was in the process of significantly extending its revenue lead over No. 2 ranked Aon with its agreement to buy JLT. The JLT purchase was completed in April 2019.

With support from the Aon board, Mr. Case scheduled a dinner with John Haley, CEO of Willis Towers Watson, in January 2019 “to discuss matters generally affecting the industries in which Aon and WTW operate,” the proxy filing says.

Prior to the dinner in Miami, where Mr. Haley is based, the Willis Towers Watson chief told other executives at the brokerage that, since he and Mr. Case did not routinely speak with each other, the Aon executive may raise the possibility of a deal at the dinner.

Indeed, Mr. Case suggested exploring a “merger of equals” at the dinner, but said that Aon would likely expect “to provide limited to no premium to WTW shareholders in any such transaction,” the filing says.

The two executives reported back to their respective boards and scheduled another meeting for March 8. Before the meeting took place, however, news of the potential deal leaked on March 5 and the next day Aon announced it would not pursue a deal with Willis Towers Watson.

Under takeover rules in Ireland, where Willis Towers Watson is domiciled, Aon was barred from announcing a proposal to buy its rival for a year, but in May Mr. Case contacted Mr. Haley to say they could still discuss “the merits of a combination,” the filing says.

Discussions continued and Willis Towers Watson engaged Goldman Sachs as an advisor on the potential deal in June. Further discussions took place, and Willis Towers Watson engaged Skadden, Arps, Slate, Meagher & Flom LLP, a top mergers and acquisition law firm, in August.

The Willis Towers Watson board, however, ultimately decided that it was not interested in a deal that did not include a “meaningful premium” to its shareholders, and in September Mr. Haley told Mr. Case that his firm was not interested in pursuing a deal.

In December, Mr. Case again suggested a deal, and he met with Mr. Haley and several other Willis Towers Watson board members in Miami on Jan. 6, 2020. At the dinner, Mr. Case again suggested a “merger of equals transaction” with little or no premium to Willis Towers Watson shareholders. The Willis Towers Watson board members told Mr. Case they were looking for a premium of about 20% to start negotiations.

On Feb. 19, Aon’s board agreed to pay a premium for its rival and offered an exchange ratio of 0.99 Aon shares for each Willis Towers Watson share, which represented a 9.5% premium on Willis’s share price. Willis Towers Watson pushed for more and the next day Aon increased the proposed ratio to 1.01, which represented a 13.2% ratio, but that offer was also deemed too low by Willis Towers Watson.

On Feb. 24, Aon’s transaction committee agreed to move ahead with a deal that more resembled an acquisition but recommended the exchange ratio should not exceed 1.08.

Negotiations resumed with Willis Towers Watson asking for an exchange ratio of 1.1, which represented a premium of 22.1%. Aon countered on Feb. 25 with 1.06, a 17.7% premium. Willis Towers Watson then asked for 1.085, and on Feb. 26 the two firms finally agreed on 1.08, which represented an 18.6% premium on Willis Towers Watson’s Feb. 25 closing share price of $202.64.

Other details were hammered out over the next two weeks, including a $1 billion fee to be paid by Aon to Willis Towers Watson if the deal did not go through, and the deal was announced on March 9.

If the deal closes as planned in the first half of next year, the combined firm will have about $19 billion in revenue, based on 2019 figures, compared with Marsh & McLennan’s $16.65 billion.

Aon’s and Willis Towers Watson’s share prices have dropped amid market turmoil since the deal was announced, but on Aon’s first-quarter earnings call earlier this month, Mr. Case said the proposed all-stock deal will not be affected by the changes.