On July 26, 2021, Aon PLC (“Aon”) and Willis Towers Watson PLC (“WTW”) announced the termination of a $30 billion proposed merger, citing an “impasse” with the Antitrust Division of the U.S. Department of Justice (“DOJ”). The announcement comes only a few weeks after the European Commission conditionally approved the merger, which would have brought together two of the “Big Three” global insurance brokerages.
Aon and WTW are two of the world’s foremost insurance brokerage firms. Both companies are incorporated in Ireland, headquartered in London, and have offices across the globe, including a combined 180 offices in the United States. In 2020, Aon reported total annual revenues of more than $11 billion, while WTW reported total annual revenues of more than $9 billion. Together with New York-based Marsh McLennan, Aon and WTW make up the insurance brokerage industry’s “Big Three.”
The European Commission Reviews, Conditionally Approves the Proposed Merger
Aon and WTW jointly announced Aon’s proposed acquisition of WTW on March 9, 2020. On December 21, 2020, the European Commission (“EC”) launched an investigation into the proposed merger, citing concerns that the merger could significantly reduce competition in the insurance brokerage services industry.1 During its investigation, the EC “cooperated closely” with several competition authorities around the world, including DOJ.2 On July 9, 2021, the EC approved the merger on the condition that the companies divest some of their European assets, including WTW’s reinsurance business to competitor Arthur J. Gallagher (“Gallagher”) for $3.57 billion. According to the EC, the asset sales would have made Gallagher, which reported total annual revenues of $7.7 billion, a “credible alternative to the combined entity post-transaction.”3
The U.S. Department of Justice Files Suit to Enjoin the Proposed Merger
On June 16, 2021, DOJ filed a civil antitrust lawsuit to block Aon’s proposed acquisition of WTW. The lawsuit was the culmination of an investigation that started under the Trump administration and has been a focus for U.S. Attorney General Merrick Garland since he took office. The complaint alleged that Aon and WTW operate in an oligopoly, and that if the two entities were permitted to merge, they would use their increased leverage to raise prices and reduce the quality of products relied on by thousands of American businesses.4 According to DOJ, if allowed to proceed, the merger would “remake the Big Three into a Big Two,” further stifling competition.5 Smaller brokers cannot compete with the global service, sophisticated data and analytics, and breadth and depth of knowledge offered by the Big Three, thus making competition from smaller brokers unlikely.6 The complaint specifically alleged five violations of Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition.”7 Each of the alleged violations corresponds with a relevant market, here the provision of five different insurance services in the United States: (1) property, casualty, and financial risk broking; (2) health benefits broking; (3) actuarial services for single-employer defined benefit pension plans; (4) the operation of private multicarrier retiree exchanges; and (5) reinsurance broking.
Prior to the filing of the complaint, Aon and WTW proposed divesting certain commercial risk and health benefits assets in the United States, as well as a handful of employees who supported these services. The proposed divestitures were offered in addition to WTW’s divestiture of its $3.57 billion reinsurance business to Gallagher, along with other European assets. In two of the five relevant markets at issue — property, casualty, and financial risk broking to large U.S. companies and health benefits broking to large U.S. companies — the complaint alleged that the proposed divestitures by Aon and WTW “would not come close to fully maintaining the competition that would otherwise be lost as a result of the proposed Merger.”8 In the remaining three markets, however, the proposed asset sales “may preserve competition if reflected in an appropriate consent decree and final judgment of the Court.”9
In mid-July, U.S. District Judge Reggie B. Walton narrowed the scope of the trial to two issues: whether, as a result of the merger, large U.S. companies would be worse off when obtaining (1) property, casualty, and financial risk broking services, and (2) health benefits broking services. At that time, attorneys for DOJ and Aon and WTW indicated they may be able to reach a consent decree settlement as to the three remaining relevant markets.
The consent decree settlement negotiations came to a standstill, and, on July 26, Aon and WTW announced the termination of their proposed merger due to an “impasse” with DOJ.10 Aon and WTW maintain DOJ’s “position overlooks that our complementary businesses operate across broad, competitive areas of the economy.”11 As a result of the termination, Aon is required to pay WTW a $1 billion termination fee.
Attorney General Garland lauded the decision to abandon the merger as “a victory for competition and for American businesses, and ultimately, for their customers, employees and retirees across the country.”12 While the decision to terminate the merger may have come as a surprise, especially in light of the EC’s conditional approval, the hardline stance taken by DOJ in filing suit and in the ensuing negotiations is shaping up to be the new normal in Washington. Antitrust enforcement and policy are a top priority for the Biden administration. In June and July alone, President Biden has appointed Lina Kahn, an outspoken critic of big tech, as Chair of the Federal Trade Commission (“FTC”) and Jonathan Kanter as Assistant Attorney General for DOJ’s Antitrust Division, in addition to signing an Executive Order to promote competition in the American economy.13 While the full extent of the Biden administration’s overhaul of antitrust policy remains to be seen, at a minimum, companies doing business in the United States should expect greater scrutiny of proposed mergers. Increasing consolidation in various key industries is a top concern among antitrust regulators. Indeed, on July 9, the same day that the White House issued its sweeping, competition-focused Executive Order lamenting consolidation in the U.S. economy, FTC Chairperson Lina Kahn and Richard Powers, acting head of DOJ’s Antitrust Division, released a joint statement announcing that their agencies intend to re-assess the nation’s merger guidelines “with a goal of updating them to reflect a rigorous analytical approach.”14
1 Press Release, European Comm’n, Mergers: Commission Opens In-Depth Investigation into Proposed Acquisition of Willis Towers Watson by Aon (Dec. 21, 2020), https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2512.
2 Press Release, European Comm’n, Mergers: Commission Clears Acquisition of Willis Towers Watson by Aon, Subject to Conditions (July 9, 2021), https://ec.europa.eu/commission/presscorner/detail/en/IP_21_3626.
4 Press Release, U.S. Dep’t of Justice, Justice Department Sues to Block Aon’s Acquisition of Willis Towers Watson (June 16, 2021), https://www.justice.gov/opa/pr/justice-department-sues-block-aon-s-acquisition-willis-towers-watson.
5 Complaint at 3, United States v. Aon plc, No. 21-cv-01633 (D.D.C. June 16, 2021), ECF No. 1, available at https://www.justice.gov/opa/press-release/file/1404951/download.
7 15 U.S.C. § 18.
8 Complaint, supra note 5, at 29.
9 Id. at 30.
10 Press Release, Aon PLC, Aon and Willis Towers Watson Mutually Agree to Terminate Combination Agreement (July 26, 2021), https://ir.aon.com/about-aon/investor-relations/investor-news/news-release-details/2021/Aon-and-Willis-Towers-Watson-Mutually-Agree-to-Terminate-Combination-Agreement/default.aspx.
12 Press Release, U.S. Dep’t of Justice, Attorney General Merrick B. Garland’s Statement on Aon and Willis Towers Watson Decision to Terminate Merger Agreement (July 26, 2021), https://www.justice.gov/opa/pr/attorney-general-merrick-b-garland-s-statement-aon-and-willis-towers-watson-decision.
13 Exec. Order No. 14,306, 86 C.F.R. 36987 (2021), available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.
14 Press Release, U.S. Dep’t of Justice, Statement of Acting Assistant Attorney General Richard A. Powers of the Antitrust Division and FTC Chair Lina Kahn on Competition Executive Order’s Call to Consider Revisions to Merger Guidelines (July 9, 2021), https://www.justice.gov/opa/pr/statement-acting-assistant-attorney-general-richard-powers-antitrust-division-and-ftc-chair.