Aon (AON) To Acquire Willis Towers In All-Stock Transaction

Aon plc (NYSE:AON) has entered into an agreement with Willis Towers Watson Public Limited Company (NASDAQ:WLTW) to merge in an all-stock deal, which is expected to serve clients better. The transaction will likely close in the first half of 2021.

This acquisition is the insurance sector's largest deal, combining the world’s second and the largest insurance brokers.

Details of the Transaction

Per the deal, each Willis Towers shareholder will get 1.08 Aon ordinary shares for every Willis Towers Watson ordinary share. The value reflects a 16.2% premium to Willis Towers’ closing price on Mar 6, 2020. Whereas Aon stockholders would continue to own the same number of ordinary shares in the newly-combined entity.

Shareholders of Aon will own about 63% while Willis investors will hold nearly 37% of the combined company.

Upon closure, the deal is expected to be accretive to Aon’s adjusted EPS in the first year. Moreover, free cash flow accretion of more than 10% after full realization of $800 million of pre-tax synergies is also anticipated.

The deal will enable both companies to continue with their commitment to attain long-term financial goals.

The combined entity will likely carry on with significant growth-related investments after impressive cost savings.

Rationale Behind the Deal

This all-stock merger with combined equity value of approximately $80 billion, overtaking Marsh & McLennan Companies Inc (NYSE:MMC) , is projected to deliver improved outcomes for all shareholders.

The unique blend of the two companies — well-complementing each other — on this advanced, technology-powered global platform is anticipated to provide data-driven insights for creating new sources of client value.

Underpenetrated client demands in areas like cyber, climate risk and delegated investments would be met with the expertise of both houses. In fact, the combined entity will cater to clients across risk, retirement and health businesses.

The deal happened at a time when the market is quite volatile with insurers facing high claims and new threats in the wake of the coronavirus outbreak.

Other Major Acquisitions in the Same Space

Last year Marsh’s purchase of Jardine Lloyd Thompson Group plc for a consideration of $5.6 billion helped it expand its capabilities. The combination of these companies would likely help them combat risks, such as climate change, cybersecurity, etc.

Insurance brokers have been looking for ways to fight the evolving challenges and boost their company portfolios. In this context, these strategic initiatives will be of great help.

Shares of this Zacks Rank #2 (Buy) company have gained 8.6% in a year's time, underperforming its industry's growth of 10.9%. The performance looks subdued when compared with another company’s rally in the same space, which is Brown & Brown, Inc. (NYSE:BRO) , having surged 45% in the same time frame. You can see the complete list of today’s Zacks #1 Rank stocks here.

However, the company’s inorganic growth strategy will likely aid its stock performance to bounce back going forward.

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