Aon (NYSE:AON) is likely to offer more divestitures to get U.S. antitrust approval for the Willis Towers (NASDAQ:WLTW) deal after the DOJ sued to block the deal yesterday, according to Citi.
Citi said the firm spoke to AON last night and they are working as fast as possible to figure out what's best for shareholders, according to analyst Suneet Kamath. A "long-drawn" out litigation is likely not good for holders, while a delay of a quarter or so appears to be "manageable."
"We feel the more likely outcome is additional divestitures in the two main areas of concern," Kamath wrote in a note earlier.
Another option would be for AON just to walk away from the deal, which would also involve a $1B breakup fee. Given the companies statement last night about being committed to the deal, that seems like the least likely of the three options, Kamath said.
Willis Towers fell 1.4% after dropping 7.2% yesterday on news of the DOJ lawsuit, while AON declined 3.6% after falling 3.1% yesterday. Arthur J. Gallagher (NYSE:AJG), which has a deal to buy Aon and Willis Tower assets for $3.57B to get European approval, fell 2.1% after declining 1.9% yesterday.
In a separate note, RBC analyst Mark Dwelle wrote that at a minimum AJG deal is likely to be delayed and may possibly be cancelled, which will strand about $1.5B of equity and $1.5B of debt the company raised to complete the transaction.
Dwelle also doesn't expect AON to talk away, at least initially.
Separately, Evercore ISI analyst David Motemaden wrote earlier that it would likely be difficult for AON to address DOJ concerns especially in the CRB business particularly after 3 office sales to AJG. If the deal is terminated and AON has to pay the $1B fee it will likely hurt a buyback and be a "modest" negative.
Motemaden also said that AJG will be put in a "worse spot" given the $3.6B of debt and equity they raised for will now be dilutive. AJG will likely use some of the proceeds to buy back stock, "but it will likely take AJG time to add a similar amount of earnings power as the deal would have."