Aon and Willis Towers Watson announced yesterday a definitive agreement to merge in an all-stock transaction with an implied combined equity value of approximately $80bn.
The combined company, to be named Aon, will be the premier, technology-enabled global professional services firm focused on the areas of risk, retirement and health.

Structure and Governance

Aon will maintain operating headquarters in London.

Mr John Haley will take on the role of executive chairman with a focus on growth and innovation strategy. The combined firm will be led by Mr Greg Case and Aon CFO Christa Davies, along with a highly experienced and proven leadership team that reflects the complementary strengths and capabilities of both organisations. The board of directors will comprise proportional members from Aon and Willis Towers Watson’s current directors.

“The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital,” said Willis Towers Watson CEO John Haley. “This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value.”

“This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors,” said Aon CEO Greg Case. “Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions.”

Strategic Rationale



Combines two highly complementary businesses into a technology-enabled global platform that is more relevant and responsive to client needs. The transaction unites firms that share a belief in the power of data-driven insights to create new sources of client value.


Provides opportunity to expand and further accelerate execution against the existing Aon United and Willis Towers Watson growth strategies. The new firm will have an established focus on client value and its combined management teams have considerable experience with the integration of large, complex transactions. The teams have a shared appreciation for the importance of colleague development, the effectiveness of a one-firm growth strategy and the value of its application to the combined enterprise.


Expected to drive year one earnings accretion to Aon adjusted EPS2 with free cash flow accretion of more than 10% after full realisation of $800m of expected pre-tax synergies. The transaction is expected to generate more than $10bn in shareholder value creation from the capitalised value of expected pre-tax synergies, based on the blended 2020 price to earnings ratio of Willis Towers Watson and Aon UK on 6 March 2020, net of $2.0bn in expected one-time transaction, retention and integration costs.


Ongoing commitment to long-term financial goals of mid-single digit or greater organic revenue growth and double-digit free cash flow growth. The combined platform generated significant revenue of approximately $20bn and free cash flow of $2.4bn in 2019. The combined firm will be well-positioned to immediately deliver mid-single digit organic revenue growth or greater and, over the long term, double-digit free cash flow growth.


Strong balance sheet and a commitment to a disciplined capital management approach based on Return on Invested Capital (ROIC). Strong cash flow ensures ability to invest disproportionately in highest return areas of growth and innovation for the benefit of clients. The combined firm is committed to maintaining Aon’s current credit rating.

Transaction details

Under the terms of the agreement unanimously approved by the boards of both companies, each Willis Towers Watson shareholder will receive 1.08 Aon ordinary shares for each Willis Towers Watson ordinary share, and Aon shareholders will continue to own the same number of ordinary shares in the combined company as they do immediately prior to the closing. Upon completion of the combination, existing Aon shareholders will own approximately 63% and existing Willis Towers Watson shareholders will own approximately 37% of the combined company on a fully diluted basis.

Value

Aon anticipates that the transaction will provide annual pre-tax synergies and other cost reductions of $800m by the third full year of combination, thereby allowing the firm to continue significant investment in innovation and growth. Potential revenue synergies due to complementary capabilities are expected but not included in the synergy estimates. The principal sources of potential synergies and other cost reductions are as follows:



Approximately 73% from the consolidation of business and central support functions, including leveraging the capabilities of the Aon Business Services operational platform across the combined group; and


Approximately 27% from the consolidation of infrastructure related to technology, real estate and third-party contracts

Willis Towers Watson and Aon anticipate savings of $267m in the first full year of the combination, reaching $600m in the second full year, with the full $800m achieved in the third full year. Free cash flow accretion is expected to break even in the second full year of the combination with free cash flow accretion of more than 10% after full realisation of synergies. The transaction is expected to generate over $10bn of shareholder value creation from the capitalised value of the expected pre-tax synergies, based on the blended 2020 price to earnings ratio of Willis Towers Watson and Aon UK on 6 March 2020, net of $2.0bn in one-time transaction, retention and integration costs.

The combined firm is committed to maintaining long-term financial goals of mid-single digit or greater organic revenue growth and double-digit free cash flow growth; and is expected to maintain Aon’s current credit rating.

Arrangement

It is intended that the combination will be implemented by means of a court-sanctioned scheme of arrangement of Willis Towers Watson and Willis Towers Watson Shareholders under the Irish Companies Act. It is expected that the reorganisation of the Aon Group described in the Reorganisation Proxy Statement will be completed prior to the completion of the combination, such that prior to completion of the combination, Aon Ireland will be the publicly traded parent company of the Aon Group.

The transaction is subject to the approval of the shareholders of both Aon Ireland and Willis Towers Watson, as well as other customary closing conditions, including required regulatory approvals. The parties expect the transaction to close in the first half of 2021, subject to satisfaction of these conditions.

Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Aon operates with 50,000 employees in 120 countries;

Willis Towers Watson is a leading global advisory, broking and solutions company that designs and delivers solutions that manage risk, optimise benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and individuals. Willis Towers Watson has more than 45,000 employees and services clients in more than 140 countries.

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