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Aon to pay another $350 million or more in Willis deal costs

Greg Case

Aon PLC will pay $350 million to $400 million in costs related to its scrapped plan to buy rival Willis Towers Watson PLC, in addition to the $1 billion termination fee it already paid, its top financial executive said Friday.

The extra expenditures relate to transaction costs, compensation expenses and further development of Aon’s operating model, Christa Davies, the brokerage’s chief financial officer, said on a conference call with analysts to discuss Aon’s second-quarter results.

“These charges are related to costs to terminate and conclude the combination including related divestitures. They will all be incurred in Q3 as part of a clean break with Willis Towers Watson,” she said.

Aon has significant amounts of cash to invest, Ms. Davies said. “We’ll invest organically, inorganically with M&A, and in (share) buy-backs on a return-on-capital basis,” she said.

The decision to scrap the deal after 16 months of integration work was due to Aon’s unwillingness to agree to sell more Willis assets to allay the U.S. Department of Justice’s antitrust concerns and the prospect of prolonged litigation with the DOJ, which sued Aon and Willis last month to stop the deal, said Aon CEO Greg Case.

In its suit, the DOJ highlighted the size of the combined brokerages’ large account brokerage business, among other things, which raised competition concerns. Aon had already agreed to sell significant portions Willis’ business to Arthur J. Gallagher & Co. and others to allay antitrust concerns raised by European regulators.

Further divestures “would have damaged our client-serving capabilities” and stifled innovation, Mr. Case said. And prolonged litigation via a trial that was slated to begin in November was also “unacceptable,” he said.

“We’re just not going to wait in a holding pattern well into 2022 to have this resolved,” Mr. Case said.

Most of the related divestitures to Gallagher and others were contingent on the Aon-Willis deal being completed and have also been terminated. Aon’s agreement to sell its retiree health exchange to former Aon unit Alight Solutions, however, was amended and completed after the close of the second quarter, according to Aon’s earnings statement.

Aon reported $2.89 billion in revenue in the second quarter, a 15.6% increase over the same period last year. Organic revenue growth for the quarter, which excludes the effect of foreign exchange – including a weaker U.S. dollar – and various other factors, rose 11%, compared with a 1% decrease in the year-earlier period, which was hit by the coronavirus pandemic.

Aon’s core commercial property/casualty insurance brokerage business reported revenue of $1.35 billion for the quarter, up 14% on an organic basis, and its reinsurance brokerage reported $500 million in revenue, up 9% on an organic basis.

Mr. Case said Aon’s organic growth rate is expected to be in the mid-single-digit range or better for the rest of 2021 and beyond.

Aon reported $393 million in net income for the second quarter, down 4.4% from the same period last year, as it incurred higher expenses and taxes.


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