Aon buys Willis for $30 billion in world's largest insurance deal

The acquisition, the insurance sector's largest ever, unifies the second and third largest brokers globally into a company worth almost $80 billion, overtaking market leader Marsh & McLennan Companies Inc. It comes at a time when insurers are facing rising claims and new threats from the global outbreak of coronavirus and climate change.

Aon had scrapped plans last year to pursue a merger with Willis, a day after media reports forced it to reveal it was in the early stages of considering an all-stock offer for the Irish-domiciled company. The merger agreement came right after a 12-month restriction under Irish rules for revisiting the deal expired.

The timing also coincides with a violent market correction, as Wall Street's main stock indexes plummeted and the Dow Jones Industrials crashed 2,000 points on Monday, driven by 20% slump in oil prices and the rapid spread of coronavirus. [.N]

This also weighed on Aon, whose shares dropped 16% on Monday, much more than the 8% drop in Willis shares.

When asked about the timing of the deal, Aon Chief Executive Officer Greg Case told Reuters: "This is the time we move," noting that he spoke to 250 senior colleagues on Monday who were "energized" by the deal.

"In a world of volatility, clients have needs around protecting assets," Case said.

Willis shareholders will receive 1.08 Aon shares for each of their shares. The offer represents a premium of 16% to Willis' closing price on Friday.

Aon shareholders will own about 63% and Willis investors about 37% of the combined company. The deal is expected to add to Aon's adjusted earnings per share in the first full year, with full savings of $800 million achieved in the third year.

Aon will keep headquarters in London and be led by Aon CEO Case and Aon CFO Christa Davies. Willis CEO John Haley will become executive chairman.

Aon and Willis put together insurance contracts for clients that involve a number of insurance providers, for anything from airlines to large sporting events.

Brokers also play a key deal-making role in the 330-year-old Lloyd's of London [SOLYD.UL] commercial insurance market, which carries out much of its business face-to-face and insures specialist risks like oil rigs and soccer stars' legs.

Aon and Willis also provide investment and employee benefits advice, and broker deals for reinsurers, who share part of insurers' exposure to potential large losses like hurricanes, in return for part of the premium.

The combined entity will work across risk, retirement and health businesses. The deal will also allow the "new" Aon to offer clients services in areas like cyber, intellectual property and climate risk, executives said.

(GRAPHIC: Aon and Willis agree largest ever insurance merger - https://fingfx.thomsonreuters.com/gfx/editorcharts/WILLIS-M-A-AON/0H001R8FEC7W/eikon.png)

SECOND TIME LUCKY?

The deal follows Marsh's purchase last April of British rival Jardine Lloyd Thompson for $5.7 billion.

"The insurers and re-insurers are unlikely to be happy about the deal given the scale of the two players coming together," said analyst Ben Cohen at Investec.

The deal terms state Aon must pay $1 billion to Willis if the deal falls through.

Aon's Davies said she was confident of getting all the necessary approvals for the deal.

"We have had great counsel on the topic of anti-trust, feel really good about it," Case said.

Credit Suisse advised Aon, while Willis was advised by Goldman Sachs.

(Reporting by Noor Zainab Hussain in Bengaluru and Suzanne Barlyn in New York; Additional reporting by C Nivedita in Bengaluru and Carolyn Cohn in London; Writing by Anirban Sen; Editing by Patrick Graham and Lisa Shumaker)

By Noor Zainab Hussain and Suzanne Barlyn