Will Gallagher re-enter the fray for Willis assets?

Arthur J Gallagher & Co (Gallagher) has confirmed that its agreement to acquire some of the choicest reinsurance and corporate broking fruits of  Willis Towers Watson (WTW) has been terminated as a result of the collapse of the $30 billion combination of  Aon and  WTW.

However, could it get back to the table at some future point?

Gallagher said that in conjunction with the termination, it plans to exercise the special optional redemption feature of its $650 million tranche of 10-year senior notes issued on 20 May 2021, adding that it is also exploring opportunities to deploy its excess cash position through its merger programme, as well as a possible share repurchase.

All well and good, and no-one can doubt Gallagher’s willingness to put its shareholder capital to good use, but in reality there must be frustration that it has come so close to acquiring some of the most highly prized broking assets in the market, only to see the deal pulled as a result of political and regulatory forces beyond its control.

Gallagher’s stock fell by 1.9 percent in the hours after the Aon- WTW deal was called off, with some investors rueing what could have been.

World-class opportunity

As a result of the EU giving the green light to the Aon- WTW merger, a number of important disposals had to be made. As such, Gallagher had been set to reposition itself as one of the leading reinsurance brokers in the market, with a deal to acquire the well-regarded reinsurance unit Willis Re, as well as a set of WTW corporate risk and broking and health and benefits services—for a total consideration of $3.57 billion (see below).

Gallagher had also been set to acquire significant additional expertise through the arrival of more than 2,300 new colleagues from Willis Re, including the insurance-linked securities and capital markets-focused Willis Re Securities team.

At the time the deal was announced, Gallagher was jubilant.

“The jewel of the transaction is reinsurance and we’re very, very excited to be bigger at that. It puts us in a position to clearly be in the top three in virtually every part of the business that we touch,” said chief executive officer J Patrick Gallagher Jnr on an investor call.

Gallagher also alluded to picking up “world-class data and analytic capabilities”, including catastrophe and capital modelling to dynamic financial analysis tools that the firm said would enable it to further leverage its current Gallagher Re relationships and potential prospects.

For the time being Gallagher is out of the picture to acquire Willis Re but this does not mean the deal is dead in the water indefinitely. Given how close it came, and how effusive it was about the potential to position itself at the reinsurance broking top table, it would be surprising indeed if we were not to see the two parties again sit down to talks once the legal and regulatory waters have stilled.

What could have been: the $3.6 billion  Gallagher- WTW package

Gallagher’s deal with  WTW had included:

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