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(Reuters) — Aon PLC said on Monday it would buy Willis Towers Watson PLC for nearly $30 billion in an all-stock deal that creates the world's largest insurance broker and adds scale in a battle with falling margins.
The deal unifies the sector's second and third largest names into a company worth $76 billion by current share prices, overtaking market leader Marsh & McLennan Cos. Inc., as they face challenges ranging from the coronavirus to climate change.
First mooted a year ago, the deal also comes after a period of brutal competition which has seen insurance premiums fall while claims continue to grow.
Aon confirmed last year that it was in early-stage talks with Willis Towers before quickly scrapping the plans, without giving a reason.
Analysts said at the time that an Aon-Willis deal might have trouble clearing anti-trust hurdles. The deal terms state Aon will be obligated to pay a fee of $1 billion to Willis if the deal were to fall through.
Marsh last April sealed its own purchase of British rival Jardine Lloyd Thompson Group PLC for $5.7 billion, cementing its position as the biggest global player.
Under the deal, Willis shareholders would receive 1.08 Aon shares, or about $232 per share as of Aon's Friday close, representing a total equity value of $29.86 billion. The offer is at a premium of 16% to Willis's closing price on Friday.
Shares in Aon were down 2.7%, while Willis' shares rose just 1.42% in trading before the bell in a New York market that was set to fall heavily across the board due to Monday's collapse in oil prices.
"Aon generally has a successful acquisition history but given the timing it is not certain how investors will react to the acquisition in the short-term," said Paul Newsome, managing director at brokerage Piper Sandler.
When the deal closes, existing Aon shareholders will own about 63% and existing Willis investors will own about 37% of the combined company on a fully diluted basis.
The deal is expected to add to Aon's adjusted earnings per share in the first full year of the deal, with savings of $267 million, reaching $600 million in the second year, with the full $800 million achieved in the third year.
Newsome said the deal multiple was about 19.3 times 2020 earnings per share (EPS) estimate of $12 for Willis and about 12.3 times its 2020 core earnings (EBITDA) estimate.
This compares to the peer group median trading at about 22.6 times earnings and 13.6x core earnings, he said.
The deal is subject to the approval of shareholders and regulatory approvals and is expected to close in the first half of 2021.
Aon will maintain its headquarters in London and the combined firm will be led by Aon CEO Greg Case Greg Case and Aon Chief Financial Officer Christa Davies.
Aon's financial advisor for the deal is Credit Suisse Securities, while Willis was advised by Goldman Sachs.