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Aon CEO says COVID-19 impact reinforces need for Willis Towers Watson deal

Last modified July 31, 2020. Published July 31, 2020. Print article

CEO Greg Case said Friday that the impact of COVID-19 has fortified the rationale for his firm’s proposed acquisition of , asserting that the tie-up will allow the combined firm to better serve clients.

“Our clients actually see the world changing around them, and it really does reinforce everything we’ve talked about in terms of, you know, meeting unmet needs,” Case said on a Friday earnings call with analysts. 

He added that COVID-19 has emerged in the integration plan for the firms.

During the call, Case repeatedly made the case for a client-centric thesis for the merger, which was first announced in March. 

“At a time when our clients need us most, the combination with Willis Towers Watson further strengthens our client-serving capability,” Case said.

Noting that “this pandemic has fundamentally reordered client priorities in a way never really seen in history,” Case then cited other future crises that clients will need help with, such as climate change, cybersecurity and protecting firms’ intellectual property.

Case’s remarks echoed those of John Haley, the CEO of Willis Towers Watson, who said on a Thursday earnings call for his firm that the merger’s rationale “about providing more innovative solutions” remains relevant because such solutions are needed in the face of the pandemic and its economic fallout.

Christa Davies, Aon’s chief financial officer, said that the timeline for the merger remains on track, with a shareholder vote set for Aug. 26. The deal is expected to close in the first half of 2021, Davies added.

The CFO also expressed optimism that no divestitures will be needed in order to pass antitrust muster. For example, when she was asked about both firms’ reinsurance businesses, she called them “highly complementary,” citing different market strengths.

The proposed acquisition, which is all in stock, calls for Willis Towers Watson’s shareholders to receive 1.08 Aon shares for each share that they have. Following the acquisition, around 62.8% of the combined company will be owned by Aon’s shareholders, while about 37.2% will be owned by Willis Towers Watson’s.

Aon pared back some of its financial projections for the merger because it no longer had enough insight due to the COVID-19 economic environment, Davies said. A comparison of slides for first-quarter and second-quarter earnings demonstrated this adjustment.

Davies, in response to an analyst’s question about details being omitted in the recent slide deck, said that an estimate for the deal being accretive to earnings per share during the first full year following the tie-up was pulled, as it was based on financial guidance that Aon withdrew due to economic uncertainty. 

Aon also removed a projection showing that the deal would lead to an expected breakeven of free cash flow for the merger’s second year. The projection also showed free cash flow accretion from the deal of more than 10% once synergies that were anticipated were realized.

The firm still predicts $800 million worth of cost synergies from the deal; Davies said the figure is not coupled with the macroeconomic picture. 

The executives’ discussions about the proposed merger came as Aon reported strong second-quarter results. Despite reporting a 4% revenue decline from the same period last year, reaching $2.5 billion, Aon said that overall profit increased by 43%, going from $287 million to $411 million. Profit that is attributable to Aon’s own shareholders, which strips out profit tied to non-controlling interests, rose by 44%, going from $277 million to $398 million. Earnings per share, meanwhile, rose by 49%, going from $1.14 to $1.70.

Profit grew as the revenue decline was offset by an even faster fall in expenses, which dropped by 13% from the previous period last year. 

Davies touted Aon’s expense management, as well as handling liquidity, adding that the measures help with the company’s stability.

“This conservatism makes us resilient through these challenging times and positions us to come out stronger,” she said.

Aon’s expense tightening included cuts in salaries for employees, which Case noted have been reversed due to the company’s view of the economic environment improving.

Aon also reported a large increase in free cash flow for the first half of 2020, which rose by 343%, or from $255 million to $1.13 billion. Davies cited improvements in operating income and working capital as reasons, adding that the salary-cuts reversal will not have a significant impact going forward.