DOJ complaint threatens to scupper Aon-WTW deal

The US Department of Justice (DOJ) has filed a civil antitrust lawsuit in the US District Court for the District of Columbia, to block Aon’s planned $30bn acquisition of Willis Towers Watson (WTW). The DOJ says the combination of the two firms, turning the ‘Big Three’ into the ‘Big Two’, would seriously limit choice and competition for customers, inevitably lead to price increases and stifle innovation for US businesses, their customers, employees and retirees. Aon and WTW swiftly issued a statement disagreeing with the DOJ’s concerns, stating that the authority has showed a lack of understanding of the deal and the market. And the DOJ news comes as Reuters reported this week that the deal is expected to get EC approval later this month or in early July. Aon and WTW will be hopeful that its previous agreement to divest chunks of the business – notably WTW’s primary broking business in leading European markets such as Germany, France and Spain – will manage to overcome the DOJ’s threat. And analysts have said that the brokers will put more US assets up for sale to appease the DOJ. But the statement issued by the department does not suggest it will give up easily. “Today’s action demonstrates the Justice Department’s commitment to stopping harmful consolidation and preserving competition that directly and indirectly benefits Americans across the country,” said US attorney general Merrick B Garland. “American companies and consumers rely on competition between Aon and Willis Towers Watson to lower prices for crucial services, such as health and retirement benefits consulting. Allowing Aon and Willis Towers Watson to merge would reduce that vital competition and leave American customers with fewer choices, higher prices and lower-quality services,” he added. The DOJ complaint says that Aon and WTW provide essential guidance to many of America’s largest companies. It adds that US companies depend on the two brokers to “craft and administer” health and retirement benefits, and keep their costs down by managing complex and evolving risks. It points out that the two broking giants compete “head to head” to provide these services, which helps ensure businesses obtain innovative, high-quality broking services to manage their risks and provide critical health and retirement benefits to their employees, at a reasonable cost. The DOJ complaint alleges that the merger would eliminate this important competition in five markets, resulting in higher costs to companies, higher costs to consumers and decreased quality and innovation. The complaints includes a quote from Aon’s chief broking officer that appears to seriously undermine the proposed deal. The DOJ states: “Now, by combining with WTW, Aon would eliminate this competition and remake the Big Three into a Big Two. As Aon’s chief broking officer explained to his colleagues: ‘We have more leverage than we think we do and will have even more when [the] Willis deal is closed… we operate in an oligopoly that not everyone understands.’” The complaint continues: “If allowed to merge with WTW, Aon likely would use that leverage against American businesses. Businesses likely would pay the price in the form of higher fees for lower-quality services for the management of their most complex and expensive commercial risks through insurance and reinsurance.” Adding: “They likely would pay the price through higher costs for lower-quality service for the management of health benefits plans of millions of employees and retirees. And they likely would pay the price through higher costs for lower-quality service for the administration of trillions of dollars in defined benefit pension plans on behalf of their retirees. Ultimately, the burden of those higher costs is likely to fall on their customers, employees and retirees across the country.” As noted above, Aon and WTW have already agreed to sell certain parts of their business to help satisfy competition concerns, not least a big chunk of Aon’s European business that A J Gallagher hopes to acquire and turn itself into a serious player in Europe. But the planned sales do not satisfy the DOJ. “Although Aon and Willis Towers Watson have agreed to certain divestitures in connection with investigations by various international competition agencies, the complaint alleges these proposed remedies are inadequate to protect consumers in the United States. The complaint also alleges the US-focused divestitures in health benefits and commercial risk broking, in particular, are wholly insufficient to resolve the department’s significant concerns,” it states. Aon and WTW not surprisingly refute the DOJ’s arguments. “We disagree with the US Department of Justice's action, which reflects a lack of understanding of our business, the clients we serve and the marketplaces in which we operate,” they state. They argue that the merger would actually enhance innovation. “Aon and Willis Towers Watson operate across broad, competitive areas of the economy and our proposed combination will accelerate innovation on behalf of clients, creating more choice in an already dynamic and competitive marketplace,” state the brokers. The statement also points out that the rise of the pandemic has further strengthened their case. “While this proposed combination was not developed with the pandemic in mind, the impact of the pandemic underscores the need to address similar systemic risks, including cyber threats, climate change and the growing health and wealth gap that our combined firm will more capably address,” continues the Aon-WTW statement.

DOJ complaint threatens to scupper Aon-WTW deal

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