By Alwyn Scott and Sohini Podder
(Reuters) -Aon Plc and Willis Towers Watson Plc on Monday called off a $30 billion merger that would have created the world’s largest insurance broker, saying objections by U.S. regulators created unacceptable delay and uncertainty.
The decision was hailed by some as an early victory for the Biden administration’s Department of Justice, which sued last month to block it. But it stood at odds with European regulators who recently approved the deal, on condition the companies sell assets – deals now halted that will largely affect the proposed buyer, broker Arthur J. Gallagher & Co .
Combining Aon and Willis, which rank second and third in revenue behind Marsh & McLennan Cos Inc, would have created a new leader with $20.3 billion in annual revenue, compared with $17.2 billion for Marsh.
Aon will pay a $1 billion termination fee to Willis, the timing and financial impact of which was not immediately clear. Aon reports second-quarter results on Friday. Willis said on Monday it would boost share repurchases by $1 billion.
“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 Chief Executive Officer Greg Case said in a statement.
The DOJ had no immediate comment. Aon declined to comment. Willis did not immediately respond to a request for comment.
Aon’s shares were up 7.8% at $250.61, while Willis Towers’ stock was down 7.3% at $209.98 in New York trading.
The DOJ had argued the combination would reduce competition and lead to higher prices.
But U.S. District Judge Reggie Walton last week narrowed the trial scope to two issues; whether large U.S. companies would face diminished competition when buying property, casualty and financial risk coverage; and health-and-benefit coverage for employees.
Walton, who has been assigned criminal cases related to the Jan. 6 attack on the U.S. Capitol, had warned that those could be heard before the Aon-Willis-DOJ suit, which risked further delaying the date of the deal being concluded.
“Since some of them are incarcerated, their rights to a speedy trial are going to have to take precedent over other matters,” Walton said at a July 6 hearing.
A lengthy court process of possibly nine months would push the deal’s closure well into 2022, and that posed too much risk, according to a person familiar with the matter.
Solving the remaining DOJ issues also posed a threat to customers and employees because the businesses are not organized by client size, making selling parts difficult, the source said.
“If we had tried to separate out large clients, we would have broken up books of business,” the source said, referring to portfolios of policies. This would raise concerns about whether account executives would need to leave Aon with the policies that were sold, or would remain with Aon but lose customers.
“The companies were not able to come to an agreement with the DOJ that made economic sense for them,” said Paul Newsome, an analyst at Piper Sandler. “I don’t think its more complicated than that.”
The DOJ had also alleged that the combination would harm competition in reinsurance broking, retirement and pension planning and private retiree multi-carrier healthcare exchanges. But the sides had begun finalizing settlement on those issues.
In a video to employees, Aon CEO Case said: “The DOJ position is remarkably out of step with the rest of the global regulatory community and we were confident that we would win in court.”
The now-halted divestitures included Aon’s U.S. retirement unit, U.S. retiree healthcare exchange and its retirement business in Germany. Also included was Willis Towers Watson’s global reinsurance business.
Aon also said it had extended by three years the employment contracts of Case and Chief Financial Officer Christa Davies, through April 1, 2026, a move designed to provide stability.
Some experts saw the DOJ’s victory as a sign of a new tone in Washington.
The administration is “holding down concentration in sectors that are not so visible .. like insurance,” Fiona Scott Morton, an economist who teaches at the Yale School of Management, said in a tweet.
Broader implications were felt by companies in the midst of large deals that could also attract the DOJ’s antitrust gaze. Discovery Inc jumped 10% in early trading, before giving up some of its gains. The media firm announced in May a $43 billion combination with AT&T Inc’s WarnerMedia. Kansas City Southern dipped as much as 1.7%. The railroad operator agreed to be acquired by Canadian National Railway, although the Biden administration has shipping costs in the sector in its anticompetitive sights.
(Reporting by Sohini Podder, Niket Nishant and Ankur Banerjee in Bengaluru, Alwyn Scott and David French in New York and Diane Bartz in Washington; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and Marguerita Choy)