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Willis Towers Watson (WLTW) and AON Merger Falls Apart

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The much-awaited merger between Willis Towers Watson plc (WLTW - Free Report) and Aon plc (AON - Free Report) has been terminated. This also marks the end of the litigation with the U.S. Department of Justice (DOJ). While shares of Willis Towers lost nearly 9%, shares of Aon gained 8.2% in yesterday’s trading session.

The merger was announced on Mar 9, 2020. In June 2021, the Department of Justice filed an antitrust lawsuit anticipating that the merger could threaten competition. Had the transaction materialized, it would have marked the insurance sector's largest deal, combining the world’s second and third largest insurance brokers. This all-stock $30 billion merger with combined equity value of approximately $80 billion would have dethroned Marsh & McLennan Companies Inc (MMC - Free Report) , the largest insurance broker.

Aon CEO Greg Case stated, “Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice. Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice.” Aon will have to pay $1 billion termination fee to Willis Towers.

With the fallout, Arthur J. Gallagher & Co.’s (AJG - Free Report) pending purchase of reinsurance, specialty and retail brokerage operations of Willis Towers for $3.57 billion stands cancelled. Arthur J. Gallagher had announced the transaction on May 12, 2021. The company now intends to exercise the special optional redemption feature of its $650 million tranche of 10-year senior notes issued on May 20, 2021. Arthur J. Gallagher is also assessing opportunities to deploy its excess cash position through its merger program as well as possible share repurchases.

Subsequent to the termination announcement, Willis Towers’ board of directors increased the company’s share buyback authorization by $1 billion. The company already has $500 million remaining under its current buyback program. Willis Towers intends to utilize this authorization in 2021 and 2022.

This Zacks Rank #2 (Buy) insurance broker also intends to utilize the significant capital generated by cash flow from operating and non-operating activities to increase its investment in organic and inorganic growth opportunities over the next three years.

Shares of the company have gained 11.5% since the merger was announced on May 9, 2020, underperforming the industry's increase of 30.8%. Focus on realizing operational efficiencies, investment in new growth avenues, and solid customer retention will help it outperform its industry.
 

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Willis Towers is slated to report its second-quarter results on Aug 3, before market open. It has a solid track of delivering earnings surprise, having beaten estimates in the last eight reported quarters.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.