There’s a lot going on in the financial markets recently. Whether it’s the ongoing coronavirus epidemic, in which countries like Italy have announced major lockdowns, or the Saudi-Russia oil price war, the general sentiments surrounding the markets have soured. However, while everyone’s paying attention to these stories, what could be the biggest merger of 2020 has been announced, and it could easily pass under the radar considering everything that’s been going on so far. Insurance broker Aon (NYSE: AON) announced on Monday that it was planning to buy out a rival insurance company, Willis Towers Watson, for around $30 billion in stock.
This new merger, which would be the biggest seen so far this year, would create a gigantic insurance broker with combined annual revenue of over $20 billion. The combination is expected to yield an extra $800 million in cost savings, something which would significantly help with boosting profits as well. The new corporate entity will keep the name Aon and will have a combined market cap of approximately $80 billion.
It’s somewhat of a strange time to announce a major acquisition like this, especially considering what’s going on right now. The Dow Jones has fallen by almost 8% on Monday, while oil prices have plunged by 25% in what’s been the single worst day for the commodity since 1991. However, it makes sense from a long-term perspective, where a number of other insurance giants have considered consolidating in order to help improve profits.
The proposed deal is expected to be financed entirely via equity rather than cash in an effort to prevent adding too much debt to Aon’s balance sheet. This isn’t the first time that Aon has approached its acquisition target, Willis Towers, about a possible buyout. Back in March, the company received a similar offer at that time. However, it ended up falling apart.
Despite the good news, nothing could really be so impressive that it could outweigh the general decline seen in the markets on Monday. Shares of Aon fell by around 16.7% over the course of the day, a surprisingly high loss given that the major indexes fell by a smaller amount. However, it’s possible that investors are puzzled about Aon’s decision to publish this news today. Given the uncertainty going on in the financial markets, it might have been better to announce this merger some other time.
Regardless, most Wall Street analysts covering the company have been neutral about its long-term prospects. At present, there are 11 analysts with a “hold” rating, compared to just “six” buys and one “sell.” Three months ago, there were 14 analysts with a neutral “hold” rating, but four “buys” and two “sells.” Time will tell how the insurance giant will fare with this new merger, but it’s clear that in the short term, anything goes as far as stock prices are concerned.
Aon Company Profile
Aon is a leading global provider of insurance and reinsurance brokerage and human resource solutions. Its operations are tilted toward its brokerage operations. Headquartered in London, Aon has about 50,000 employees and operations in 120 countries around the world. – Warrior Trading News
