Aon Plc AON.N and Willis Towers Watson Plc called off their $30 billion merger plan on Monday, terminating an agreement that could have made the combined company the world's largest insurance broker.
The deal, announced in March 2020, hit a major roadblock last month when the U.S. Department of Justice sued to block it, saying the buyout would reduce competition and lead to higher prices.
The companies said they would end their litigation with the U.S. Department of Justice, and Aon would pay $1 billion in termination fee to Willis.
The DOJ had alleged that combining the two large insurance brokers would harm competition in reinsurance broking, retirement and pension planning and private retiree multi-carrier healthcare exchanges.
"Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice," Aon Chief Executive Officer Greg Case said in a statement.
A federal judge narrowed the scope of the lawsuit last week, which came after Aon and Willis agreed to divestitures to win approval in the United States and Europe after discussions with regulators.
In a video sent to employees, Case explained the rationale for dropping the merger plan, despite favorable action last week by a federal judge.
"The DOJ position is remarkably out of step with the rest of the global regulatory community and we were confident that we would win in court," Case said.
"Unfortunately, while we requested a speedy trial, the current course with DOJ would likely have taken us well into 2022. At best, DOJ's perspective demonstrates a fundamental misunderstanding of the marketplace. At worst, our combination was blocked by poor timing and other factors ultimately outside our control."
The divestitures agreed by the companies included Aon's U.S. retirement unit, U.S. retiree healthcare exchange and its retirement business in Germany. Also included was Willis Towers Watson's global reinsurance business. EU antitrust regulators approved the merger earlier this month conditioned on some of the sales.
Aon ranks second and Willis fifth among U.S. commercial insurance brokers in the U.S. market, according to a survey by the Business Insurance magazine.
The other big brokers in the United States are world's No.1 insurance broker Marsh & McLennan Cos Inc, Arthur J Gallagher & Co and Alliant Insurance Services Inc.
Willis Towers Watson said on Monday it would increase its existing share repurchase program by $1 billion.
Aon's shares were up 4% at $242, while Willis Towers' stock was down 3.5% at $218 in pre-market trading.
(Reporting by Sohini Podder, Niket Nishant and Ankur Banerjee in Bengaluru, Alwyn Scott in New York; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila) ((Sohini.Podder@thomsonreuters.com;))