Dividends and Insurers Aon, Willis drop $30 billion merger amid US regulators’ objections

One of the responsibilities of the Board of Directors is strategic directions – management will present various options and the Board signs off on it. One of the strategic directions is how is the industry developing and what mergers and acquisitions make a good fit for the company. One can easily imagine the greater the dollar value, the more preparation and fundamental revamping of the company is what is required. In the insurance brokerage industry, the largest company is Marsh & McLennan and the second and third are Aon and Willis Towers Watson. The second and third companies wanted to merge to make the combined company revenues of $20.3 billion versus Marsh of $17.2 billion. In Chicago, the tallest building in the city, formerly the Sears Tower is called the Willis Tower for the insurance company of Willis Towers Watson. Both Willis and Aon are global insurance companies started in London, England.

In every proposed merger, the process involves the company which wants to merge, the second company agreeing to merge, the appropriate senior management positions, then shareholders have to agree and then you sell the merger to your customers on better customer service. Very often with billion dollar mergers, the lobbyists have spoken to the government and its regulatory bodies to assure government approvals.

Governments change and when the pro company Trump administration changed to the Biden administration, the new administration noted it will not automatically approve every merger. It was up to senior management and the Board to listen to what the regulators will do and take their considerations in their plans for the future.

The Department of Justice has a new mandate from President Biden and argued the combination of the two companies would reduce competition and lead to higher prices. Given both companies offer health and retirement plans for employees, reinsurance and a host of other actuaries services there was a high possibility of higher prices. The combined company was willing to sell some of its holdings, but not to the satisfaction of the Justice Department or which meant the timelines of senior management.

Linking to dividend paying stocks, there was a valid reason for the potential merger and Aon will pay Willis a $1 billion termination fee, which Willis will use to buy back stock. When a merger of any size is announced, senior management must work with the other company’s management to determine how the new company would fit into their operations – everything from people, computer systems, customers and equally important retaining people even though there would be change. There is a great deal of time and effort which needs to be done. When a company drops the merger, everything has to be put back in place which will need time and effort. When a proposed merger is of two profitable companies they can still make profits as the companies change their directions back to pre merger operations. Perhaps under a new administration the merger appeal will rise again.

There are more questions than answers, till the next time – to raising questions.

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