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Insurance broker Aon has said it expects to pay up to $400 million in additional costs, on top of a $1 billion termination fee, for the cancellation of its acquisition of rival Willis Towers Watson.
The two companies unexpectedly called off their mega-merger earlier this week over what Aon called a “stalemate” with the US Department of Justice, which had filed a lawsuit to block the deal on competitive grounds.
The all-stock deal was agreed in March 2020, but attracted regulatory scrutiny around the world. The EU gave the green light earlier this month, but the US lawsuit initiated by the DoJ was not expected to begin until November.
In its second quarter results on Friday, Aon said it would “continue independently, focused on delivering innovation on behalf of customers, growth opportunities for colleagues and value creation for shareholders.”
The $1 billion break fee plus approximately $350 million to $400 million in additional termination charges will be recognized in the third quarter, Aon said Friday. It added that it did not expect “more significant financial consequences” from the collapsed deal and chief financial officer Christa Davies told analysts the charges were part of a “clean break” with Willis.
The US Attorney General said the decision to call off the merger was a “competitive victory for US companies”. The DOJ’s lawsuit warned that the deal could create a “Big Two” in insurance brokerage.
Jen Psaki, the White House press secretary, also welcomed the termination of the deal, saying it was “in line with” President Biden’s administration’s tougher approach to antitrust.
Greg Case, Aon’s CEO, defended the decision to call off the merger in an earnings call on Friday, saying the company “wouldn’t wait in a holding pattern well into 2022 to get this resolved.”
Aon said Friday it would continue to sell its retiree health business to Alight, but cancel an agreement to sell its U.S. retirement business. The divestments were offered to remove the competition concerns.
Shares of Aon have risen since the deal failed, and analysts have supported it to thrive in the growing commercial insurance market without the distraction of the merger. They were flat in early trading on Friday.
In the second quarter, it posted a 16 percent year-over-year revenue increase to $2.9 billion, ahead of the consensus estimate of $2.7 billion provided by Capital IQ.