The deal, announced in March, is expected to close in the first half of 2021.
Since the announcement, five separate shareholders have filed lawsuits against Willis, with complaints centring around the information provided by the broker to shareholders in its definitive proxy statement on the merger.
Both Aon and Willis have set 26 August as the date for shareholder votes on the deal.
Shareholder complaints
In a complaint filed in New York in May, Shiva Stein – an activist shareholder and serial litigant who has previously sued Stancorp, Symetra Financial and Goldman Sachs – alleged that the registration statement of the merger filed by Willis and Aon with the SEC “misrepresents and/or omits material information” essential to shareholders.
In particular, Stein complained that the registration statement “discloses management-prepared financial projections which are materially misleading”.
She also claimed that the statement alluded to non-public financial forecasts that Willis provided to its financial advisors, but failed to provide these projections to shareholders.
Citing an earlier shareholder litigation against Netsmart Techs Inc., Stein’s complaint said: “Courts have uniformly stated that ‘projections… are probably among the most highly prized disclosures by investors. Investors can come up with their own estimates of discount rates or market multiples. What they cannot hope to do is replicate management’s inside view of the company’s prospects.’”
Stein’s complaint added that Willis’ standalone projections for 2020-2024, and Aon’s projections for 2020-25, provided non-GAAP metrics for adjusted Ebitda, net income, unlevered and levered free cash flow and adjusted earnings per share (EPS), but did not disclose the line items used to calculate these metrics or a reconciliation of them to comparable GAAP measures.
Stein also took issue with a number of elements of Goldman Sachs’ analysis of Willis, complaining that the bank’s assessment failed to disclose the basis for its calculation of key figures such as price to next-12-months estimated EPS, enterprise value multiples and cash flow.
Suits filed by investors Michael Kent, Richard Carter and Minrui Tang later in May put forward almost identical claims, as did a June suit filed by investor Nikodem Kuznik.
Kent’s complaint added: “When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed.”
Tang’s complaint, filed with a California court, included an additional allegation that “[Willis] insiders are the primary beneficiaries of the proposed transaction, not the company’s public stockholders”.
Tang noted four of the 11 members of the combined company’s board will be selected from Willis’ current directors, while Willis CEO John Haley will become executive chairman.
He also noted the significant change in control payments to be paid to Willis’ top team after the closure of the transaction, including the $28.9mn cash-and-stock payment due to Haley.
Tang and Kuznik also claimed that Goldman Sachs failed to fully disclose all of the potential conflicts of interest it faces as an adviser connected with the deal, including its role as a book-runner on Aon’s commercial paper programme, which it has fulfilled since June 2016.
Response
In their response in an SEC filing today, Aon and Willis said the allegations in the complaints were “without merit” and that they were not legally obliged to make any further disclosure.
However, the companies noted they had added information to the definitive proxy statement to avoid delaying or adversely affecting the transaction.
The response added that Willis’s board reviewed Goldman Sachs’ relationship disclosures and concluded that nothing in them should prevent the bank from acting as its adviser.
In response to various questions about the assumptions and basis for Goldman Sachs’ analysis, Aon and Willis confirmed that the Willis management team’s own projections had formed the basis of many of the bank’s conclusions.
The response also clarified when Aon and Willis did and did not provide line items for analysis of various metrics including adjusted Ebitda, net income, cash flow and EPS.
Insurance Insider delivers global wholesale, specialty, and (re)insurance intelligence that enables you to act first. Redeem your complimentary 14-day trial for more premium content from Insurance Insider.
Scan here to download the app