Home > Business > Two insurance giants call off their planned merger after a D.O.J. lawsuit.

Two insurance giants call off their planned merger after a D.O.J. lawsuit.


Daily Business Briefing

July 26, 2021, 9:31 a.m. ET

July 26, 2021, 9:31 a.m. ET

Credit…Jakub Porzycki/NurPhoto, via Getty Images

Two of the world’s largest insurance brokers, Aon and Willis Towers Watson, announced on Monday that they had called off a planned $30 billion merger, just a little more than a month after the Department of Justice sued to block the union.

The D.O.J.’s case against the proposed merger was the first big trustbusting move by the Biden administration, which has signaled a willingness to be tough on corporate consolidation.

This case is arguably the first antitrust win for President Biden, who named Jonathan Kanter last week to run the D.O.J.’s antitrust division. Mr. Kanter has spent much of his career fighting Big Tech on behalf of smaller companies. Mr. Biden has named other critics of Big Tech to prominent roles, such as Lina Khan to lead the Federal Trade Commission and Tim Wu, who serves in an economic policy role at the White House.

On Monday, Aon and Willis Towers Watson said they decided to end the Justice Department’s litigation and move forward independently.

“We reached an impasse with the U.S. Department of Justice,” Aon’s chief executive, Greg Case, said in a statement.

The agreement, first proposed in March 2020, faced scrutiny from regulators around the world. Some, including officials in the European Union, granted conditional approval based on various concessions and divestments.

The D.O.J. lawsuit was not scheduled to head to trial until at least November, which would have delayed the deal until the first quarter of 2022 at the earliest and was untenable for Aon, a company spokesman told The New York Times.

The D.O.J.’s complaint argued that the combined companies would “eliminate substantial head-to-head competition and likely lead to higher prices and less innovation.” It said the companies dominate markets for risk and reinsurance brokering, health and pension benefits brokering, actuarial services for employer benefit programs and private exchanges that offer retiree benefits.

The government said previously the companies were aware they already operated in an oligopoly. “If permitted to merge, Aon and Willis Towers Watson could use their increased leverage to raise prices and reduce the quality of products relied on by thousands of American businesses — and their customers, employees and retirees,” the D.O.J. wrote last month.

Aon argued in its statement calling off the deal that the D.O.J. misunderstood its businesses. “We are confident that the combination would have accelerated our shared ability to innovate on behalf of clients, but the inability to secure an expedited resolution of the litigation brought us to this point,” Mr. Case said in the statement.

With the merger terminated, a slew of contingent deals will be called off, too. Some of the regulatory approvals that the combined companies received, for example in South Africa and the European Union, were dependent on Aon and Willis getting rid of some business units.

Aon said it would pay a $1 billion termination fee to Willis Towers Watson.

Both companies are incorporated in Ireland and have headquarters in London. Aon, which reported revenue of more than $11 billion last year, has around 50,000 employees around he world and more 100 offices in the United States. Willis Towers Watson employs about 45,000 people globally, with more than 80 offices in the United States. It reported revenue of more than $9 billion in 2020.

A Beijing outlet of New Oriental Education and Technology, an educational services firm. Many middle-class families in China pay for after-school tutoring to help their children gain an edge in national tests.
Credit…Tingshu Wang/Reuters

Chinese regulators on Monday banned tutoring companies from making profits, a move that sent their shares plummeting, erasing tens of billions of dollars from the value of the country’s once blistering education sector, as Beijing turns its focus to the growing financial burden that students — and their parents — face.

Some of China’s biggest publicly listed education companies lost significant chunks of their value as investors ditched them following the announcement of rules that require all companies that offer curriculum tutoring to register as nonprofit institutions.

The rules will also restrict new foreign investment, once a key avenue for those companies to raise money. They are the latest in a series of moves by China to rein in its technology sector that has hit stocks of its biggest companies, in sectors as diverse as ride hailing and music licensing. Regulators say that they are tackling privacy, cybersecurity and antitrust concerns, directing their crackdown at the country’s thriving internet industry.

Koolearn Technology, which provides online classes and test-preparation courses, said that it expected the rules to “have material adverse impact” on its business. Its stock lost 33 percent on Monday. A handful of other Hong Kong-listed education companies, including New Oriental Education & Technology and Scholar Education Group, along with the U.S.-listed companies Gaotu Techedu and TAL, issued similar statements. TAL lost 71 percent of its value on Friday, while Gaotu lost 63 percent.

For years, China’s private education sector was one of the most enticing for global investors, who threw billions of dollars at publicly listed companies that promised to capitalize on the hundreds of thousands of families striving for better opportunities through education. By Monday evening in Asia, much of that money had vanished.

Many middle-class families in China pay for after-school tutoring to help their children gain an edge in national tests that determine their futures. Last week, the country’s top administrative body published an opinion that took aim at the sector and outlined its plans to “reduce the burden of students’ homework and off-campus training.”

Analysts swiftly recalibrated their assessment of the prospects for the industry, which was once valued at more than $100 billion by Wall Street banks like Goldman Sachs. On Monday, the bank’s analysts estimated it would be worth $24 billion in the coming years.

The news reverberated through Chinese stock indexes. The Shanghai Composite index closed 2.3 percent lower, and Hong Kong’s Hang Seng dropped 4.1 percent.

Separately, regulators over the weekend ordered Tencent, the Chinese tech conglomerate, to end all exclusive music licensing deals with record labels and fined it around $78,000 for what it said were unfair practices. Shares in Tencent Music, which trades in the United States, were down more than 13 percent in premarket trading on Monday.

An internal spying scandal rocked Credit Suisse in 2019 and 2020, causing the resignation of the chief executive and chief operating officer.
Credit…Arnd Wiegmann/Reuters

Credit Suisse has settled with a former high-ranking executive who had accused the Swiss bank of spying on him, claims that eventually led to the ouster of the firm’s chief executive.

What began in 2019 with a public argument between Iqbal Khan, a wealth-management banker who had recently defected to UBS, and a corporate spy exploded into a rapidly escalating scandal. Credit Suisse’s then-chief operating officer, Pierre-Olivier Bouée, resigned after he was accused of ordering the surveillance of former colleagues.

The scandal culminated in early 2020 with the resignation of the bank’s chief executive, Tidjane Thiam, who had pledged to overhaul the controversy-prone Swiss bank. Mr. Thiam denied knowledge of the espionage operation.

A spokeswoman for Credit Suisse, Simone Meier, said in a statement on Monday that the bank had resolved Mr. Khan’s complaint against the corporate investigators that the bank had hired.

“All involved parties have agreed to settle,” Ms. Meier said. “This matter is now closed.”

An investigation into the matter by the Swiss financial regulator, known as Finma, is continuing, a spokesman for the agency said.

The settlement was first reported by NZZ am Sontag, a Swiss news outlet.

The espionage debacle is not the only controversy that has been dogging Credit Suisse of late. The bank is still reeling from losses tied to the collapses of Greensill Capital, a British lender to midsize companies, and Archegos Capital Management, an investment firm whose billion-dollar stock bets went south in the spring.

The slew of controversies has clouded the future of Credit Suisse, which has suffered a number of further defections within its investment bank in recent months.

  • Tesla earnings: How has the electric carmaker fared, with a hot car market but also a global shortage of computer chips that has hampered auto production?

  • Economic outlook: The International Monetary Fund is set to publish its global growth forecast for the year in its World Economic Outlook report. The fund’s managing director, Kristalina Georgieva, has said the global growth estimate for 2021 will be about 6 percent, which was the forecast in April.

  • Boeing earnings: The aircraft maker has had to slow production of its 787 Dreamliner model amid quality concerns and lost a record amount of money in 2020. Can the airline recovery help it return to profitability?

  • Big Tech earnings: Apple, Alphabet and Microsoft will report their financial results. Last week, Twitter and Snap reported big jumps in ad sales. Ad-heavy Google, which Alphabet owns, is expected to report the same outcome.

  • Starbucks earnings: The chain has been hit by shortages of several ingredients, including juices and breakfast foods, and even supplies like cups, lids and straws.

  • The Fed meets: The Federal Open Market Committee will decide, after talks on Tuesday and Wednesday, whether to raise interest rates. The chair of the Federal Reserve, Jerome H. Powell, has acknowledged that inflation has increased “notably.”

  • U.S. economy: The gross domestic product for the second quarter is expected to show a strong gain. Some analysts expect double-digit growth, but the Federal Reserve Bank of Atlanta, which has been lowering its forecast over the past month, expects 7.6 percent.

  • Amazon earnings: Last week, the company’s recently departed chief executive, Jeff Bezos, became the second billionaire rocket company founder to go to the edge of space.

  • Robinhood I.P.O.: The stock trading app is set to begin trading on Nasdaq by the end of the week. Robinhood’s unusual plan is set to sell up to a third of its shares directly to its customers through its app, but that could cause volatility.

  • Eviction ban: The Centers for Disease Control and Prevention’s nationwide ban on evictions will expire. Many renters are behind on payments, and the time to apply for emergency rental assistance is running out. Additionally, the rollout of federal aid for landlords and tenants has been slow.

“We went from being pirates to being the Navy,” said Marc Andreessen. “People may love pirates when they’re young and small and scrappy, but nobody likes a Navy that acts like a pirate.”
Credit…Steve Jennings/Getty Images

Even as 609,000 Americans have died from the coronavirus and the Delta variant surges, as restaurants and other businesses shut down and as millions of workers found themselves unemployed, the tech industry flourished in the pandemic.

The combined stock market valuation of Apple, Alphabet, Nvidia, Tesla, Microsoft, Amazon and Facebook increased by about 70 percent to more than $10 trillion. That is roughly the size of the entire U.S. stock market in 2002. Apple alone has enough cash in its coffers to give $600 to every person in the United States. And in the next week, the big tech companies are expected to report earnings that will eclipse all previous windfalls.

Silicon Valley, the world headquarters for tech start-ups, has never seen so much loot, reports The New York Times’s David Streitfeld. More Valley companies went public in 2020 than in 2019, and they raised twice as much money when they did. Forbes calculates there are now 365 billionaires whose fortunes derive from tech, up from 241 before the virus.

Tech is triumphant in a way that even its most evangelical leaders couldn’t have predicted. No single industry has ever had such power over American life, dominating how we communicate, shop, learn about the world and seek distraction and joy.

“Call it half luck — being in the right place at the right time — and half strategic tactics by companies recognizing this was going to be a once in a lifetime opportunity,” said Dan Ives, a managing director at Wedbush Securities. “What for most industries were hurricane-like headwinds was a pot of gold for tech.”

But any measures restricting tech will need public sentiment behind them to succeed. Even some of tech’s biggest supporters see the potential for worry here.

“We went from being pirates to being the Navy,” Marc Andreessen, a central figure in Silicon Valley for a quarter-century, told the Substack writer Noah Smith in a recent interview. “People may love pirates when they’re young and small and scrappy, but nobody likes a Navy that acts like a pirate. And today’s technology industry can come across a lot like a Navy that acts like a pirate.”

The Federal Trade Commission on Friday asked a federal judge to give it more time to refile an antitrust suit against Facebook that is the agency’s biggest test in reining in the power of big tech.

In a filing with the U.S. District Court for the District of Columbia, the agency asked for a three-week extension, or until Aug. 19, to amend a lawsuit that the court dismissed last month. The F.T.C. said in its request that it had reached an agreement with Facebook over the proposed extension.

Last month, Judge James E. Boasberg of the federal court knocked down a core argument made by the F.T.C., saying prosecutors had failed to provide enough persuasive facts to back up the claim — that Facebook holds a monopoly over social networking. But the judge gave the F.T.C. a 30-day window to refile its lawsuit.

The new lawsuit will be the first major action by Lina Khan, the new chair of the F.T.C. and a critic of Facebook, Google and Amazon who has advocated for the breakup of the digital platforms.

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