Gallagher ‘wide open’ to buying more Aon-Willis assets

Arthur J. Gallagher & Co. is willing to buy more business from Aon PLC and Willis Towers Watson PLC, beyond the assets representing $1.3 billion in annual revenue it has already agreed to buy, as its larger rivals respond to regulatory objections to Aon’s proposed purchase of Willis, Gallagher’s top executive said Thursday.

“In terms of other opportunities relative to becoming the remedy, we are wide open to that and would be very well inclined to take on more of their business,” said J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher & Co.

He was speaking with analysts on a regular investors call Thursday, one day after the Department of Justice sued Aon and Willis, saying the proposed deal, which was announced in March 2020, would reduce competition in the brokerage market.

As part of Gallagher’s agreement announced last month to buy much of Willis’ reinsurance operations and various other businesses, Aon has the option to offer Gallagher additional businesses representing up to $200 million in annual revenue.

If the lawsuit delays the Aon-Willis deal, in the fourth quarter Aon will start paying Gallagher “ticking fees” to compensate for the delay through March 2022, Douglas K. Howell, Gallagher’s chief financial officer, said on the call.

The fees would cover additional costs that Gallagher would incur for carrying additional debt and equity it issued to help cover the $3.57 billion it agreed to pay for the Willis assets, he said.

Mr. Gallagher said he disagreed with the Department of Justice’s contention that the Aon-Willis deal will restrict competition in the large account property/casualty brokerage sector. The lawsuit said that if the deal goes through Marsh & McLennan Cos. Inc. would be the only effective competitor to the combined Aon-Willis.

“There are tremendous levels of competition on large accounts and this is not a three-person play or a four-company play. Our smaller competitors, while they are smaller, have tremendous expertise, and there are lots of private companies that can compete very well,” Mr. Gallagher said.

The Aon-Willis merger is still likely to go ahead with additional divestitures, analysts at Keefe, Bruyette & Woods said in a note to investors late Wednesday.

“At this point, we see very little likelihood of the deal breaking absolutely, which would entail Aon paying a $1 billion termination fee to (Willis) with nothing to show for the last 18 months of effort,” the analysts said.

Aon’s management team is “fully capable” of extracting value from a smaller deal, and its management and employee structure remains largely intact, the note said.

“We’re most worried about (Willis), which we understand has lost significant talent and has no obvious successor to current CEO John Haley,” the analysts said.