By Peter Reap, J.D., LL.M.
The transaction would combine two of the "Big Three" global insurance brokers and harm competition.
The Department of Justice has filed a civil antitrust suit in the federal district court in the District of Columbia to block Aon’s proposed $30 billion acquisition of competing global insurance broker Willis Towers Watson (WTW), the agency announced yesterday. The transaction would combine two of the so-called the "Big Three" insurance brokers who, as alleged in the complaint, can offer global service, sophisticated data and analytics, and a breadth and depth of knowledge and expertise that other brokers do not offer. The Justice Department alleges that the merger threatens to eliminate competition, raise prices, and reduce innovation for American businesses, employers, and unions that rely on these important services. Earlier this month, Aon announced that it had signed definitive agreements to sell its U.S. retirement business in an effort to address certain concerns raised by the Justice Department, an effort the Justice Department found insufficient. Earlier this year, the Australian Competition and Consumer Commission notified the companies that their proposed merger raised competition concerns.
The complaint. Aon and WTW are the second- and third-largest insurance brokers in the world, and combined with Marsh McLennan tower above other firms—so much so that they are often referred to as the "Big Three," the complaint contends. The Big Three compete with each other directly on price, service, and the development of innovative solutions and smaller players in the market do not offer large customers the same quality and combination of services. If allowed to merge with WTW, businesses would likely 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, higher costs for lower quality service for the management of health benefits plans of millions of employees and retirees, and 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," the Justice Department argues.
Specifically, the merger would substantially lessen competition in five relevant markets: (1) property, casualty, and financial risk broking for large customers; (2) health benefits broking for large customers; (3) actuarial services for large single-employer defined benefit pension plans; (4) the operation of private multicarrier retiree exchanges; and (5) reinsurance broking. Each of these five products satisfies the well-accepted "hypothetical monopolist" test set forth in the Department of Justice and FTC Horizontal Merger Guidelines, which asks whether a hypothetical monopolist would profitably impose a price increase on at least one product sold by the merging firms in the relevant market.
Countervailing factors, including market entry, expansion, and repositioning would not be timely, likely, or sufficient to offset the anticompetitive effects of the proposed merger in any relevant market, according to the suit. Reputation, knowledge, and experience are important competitive differentiators and barriers to entry and expansion possessed by The Big Three that could not be replicated in a timely manner by a startup or smaller firm.
As for the divestitures proposed by the defendants, in two of the markets at issue—property, casualty, and financial risk broking for large customers in the United States and health benefits broking for large customers in the United States—the proposed divestitures would not come close to fully maintaining the competition that would otherwise be lost as a result of the proposed merger. In the remaining three markets, remedies proposed by the defendants may preserve competition if reflected in an appropriate consent decree and final judgment, the agency acknowledged.
The five-count complaint alleges one violation of Section 7 of the Clayton Act for each relevant market.
Attorney General statement. "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 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."
Reaction from Aon and WTW. In a statement addressing the Justice Department’s suit, Aon and WTW said: "We disagree with the U.S. 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." The companies added that they "continue to make material progress with other regulators around the world and remain fully committed to the benefits of our combination."
Aon and WTW. Both companies are incorporated in Ireland and headquartered in London. Aon has approximately 50,000 employees and offices in approximately 120 countries, including over 100 offices in the United States. In 2020, Aon reported revenues of more than $11 billion. WTW has approximately 45,000 employees and offices in more than 80 countries, including over 80 offices in the United States, and last year it reported revenues of more than $9 billion.
Aon’s divestitures announcement. Earlier this month, Aon announced the firm had signed definitive agreements to sell its U.S. retirement business to Aquiline and its Aon Retiree Health Exchange™ business to Alight for total gross consideration of $1.4 billion. The agreements were intended to address certain questions raised by the U.S. Department of Justice in relation to the combination with respect to the markets in which these businesses are active.
Australia. The Australian Competition and Consumer Commission notified Aon and WTW on February 18, 2021, that their proposed merger raises competition concerns in the markets for commercial risk broking to large customers or those with more complex and/or high-value insurance premiums, reinsurance broking, and employee benefits broking in Australia.
Companies: Aon plc; Willis Towers Watson plc
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