Hello, and thank you for holding. Welcome to today's conference call regarding the combination of Aon and Willis Towers Watson, creating a next-generation global professional services firm. Further details in respect of the proposed combination of Aon and Willis Towers Watson are provided in the announcement published by Aon on March 9, 2020, in accordance with Rule 2.5 of the Irish Takeover Rules, the Rule 2.5 announcement. In capitalized terms used but not defined in this communication shall have the meaning given to them in the Rule 2.5 announcement. This communication should be read in conjunction with and is subject to the full text of the Rule 2.5 announcement, including its appendices, which shall take precedence in the event of any inconsistency. With that, I would like to turn the call over to Greg Case, CEO of Aon. Please go ahead.
Thanks very much, good morning, everyone. Thank you for joining us today on such short notice. It is our pleasure to be here this morning with clients, colleagues, and shareholders from around the world to discuss this exciting step. Joining today is the CEO of Willis Towers Watson, John Haley, and Aon CFO, Christa Davies. I would note that there are slides available on our website that will supplement our discussion. I would also note that this transaction is governed by Irish Takeover Rules, we have published an announcement under Rule 2.5 of those rules, which has additional information about the proposed combination. This morning, we announced that we have entered into a definitive agreement for an all-stock combination with Willis Towers Watson. This highly complementary combination brings together expertise from across each organization to better understand client needs.
Our combined firm will accelerate innovation on behalf of clients and be better able to deliver more value to all stakeholders. While we will be bigger, yes, that's not what this transaction is about. This is about better. We will fundamentally be more innovative, more capable, more relevant, and more responsive upon close. We will combine diverse experience from our 95,000 colleagues and shared values from both of our organizations. To put this in context, I'd like to first address the question of why now. Why now? Our Aon United growth strategy is working. We're delivering results for clients, which we see in decade-high retention rates and record new business generation. On our key financial metrics, our 2019 organic growth of 6% was the highest we've achieved in 15 years, and we delivered record margins of 27.5% and double-digit free cash flow growth.
Our clients are facing greater challenges than ever before in large and growing categories of the global economy in risk, retirement, and health. These categories have demand characteristics that are increasing in both magnitude and complexity. 6 of the top 10 global risks are uninsured or underinsured, according to our global risk survey. Difficult-to-model risks such as cyber, intellectual property, and climate change are on the rise. Against that backdrop, we have taken significant steps to respond with actions that bring the full force of our firm to clients by developing innovative solutions and applying data and analytics to better inform and advise clients. We're not going fast enough, and we believe with our Willis Towers Watson colleagues, and I'm sure they would agree, that despite strong success and demonstrated progress against our individual growth strategies, there is significant opportunity to accelerate together.
Like us, Willis Towers Watson has a growth strategy with demonstrated success. The complementary set of capabilities that Willis Towers Watson brings and their demonstrated track record will allow us to continue to deliver our growth strategy, the Aon United blueprint, in three ways. First, we will build on the success of our Aon United strategy with the addition of sophisticated complementary capabilities. We have a shared vision to bring the best of our combined firm to clients on the topics of risk, retirement, and health. We can bring together tools like the Willis Towers Watson digital health platform and the Aon digital risk platform to offer clients more complete solutions. Bring our capabilities from Townsend to their outsourced chief investment officer client base.
Most important, we'll bring the full force of the firm to clients together, because when we come as one firm, we do more for and with clients. Second, we share a belief that data and analytics will enable us to unlock new sources of client value. Our combined firm, with over $20 billion of revenue and $2.4 billion of free cash flow on a pro forma 2019 basis, has the ability to invest significantly in new solutions and build on our technology-enabled analytics platforms. This allows us to broaden our reach, grow the overall pie, and create net new opportunities to meet growing demand. Third, we will leverage our Aon Business Services platform to continuously strengthen and share innovation across the firm. This platform drives ongoing operational efficiency and productivity improvement and provides client-facing colleagues more capacity to address client need.
We continue to look for ways to standardize, automate, and improve how we work, which enables better solutions through globally shared best practices, reduces costs, and improves colleague engagement. I am also delighted to announce that following the close of the transaction, John will serve as Executive Chairman focused on driving growth and innovation. John is a truly accomplished industry veteran with a long-standing record of delivering growth, innovation, and results for clients and stakeholders. We've long admired Willis Towers Watson's vision, strategy, and execution and are thrilled about what this partnership means for all of our stakeholders. I now want to turn over to John for his thoughts.
Thanks very much, Greg. This is a momentous next step for both of our organizations, and I'm equally excited about the next chapter and the value that it will create for clients, colleagues, and shareholders. This combination is the next step in the journey of growth strategies and shared visions that each of our organizations have worked so hard to implement. I see strong similarities in our vision to meet client needs. Our business is built on enhancing our value proposition, and in order to do that, we've built a compelling platform of solutions and services which we match with client service and innovation. We're going to accelerate this history of innovation and growth in partnership with Aon.
For example, Willis Towers Watson has developed a key pension management offering called OneDB that gives trustees and sponsors access to pension scheme data and analytics around financials, demographics, investment performance, and administration focus in real time. Tools like this are exactly the type of innovative capabilities that can be developed further across the broader organization to deliver additional client value. When we bring our organizations together, we'll be able to accelerate innovation in a way that is truly compelling for our clients. We're going to combine 95,000 diverse and talented colleagues, deep industry expertise, integrated technology, and data and analytic capabilities. We're going to be able to drive better insights, and that's going to translate into better advice. This forms the basis for better client decisions that will enable deeper relationships, more innovation, and increased relevance with our clients.
Further, I'm excited about this combination because, like Aon, we have deep expertise executing large, complex transformations. Like Aon, our company has come together over time, bringing brands like Willis, Towers Watson, and Gras Savoye, and others together. More importantly, like Aon, we're highly focused on bringing together content and capabilities to deliver best-in-class solutions to meet client needs. I'm also very excited to partner with this leadership team. They've built a culture of growth and innovation, and they have a long track record of shareholder value creation and meaningful experience integrating transformative deals. I know that together, we'll be able to accomplish better outcomes that unlock new sources of value for all stakeholders. With that, I'll turn the call back to Greg.
Thanks very much, John. We could not be more excited about the opportunity that this transaction unlocks as we strive to deliver best-in-class results for clients while delivering strong results for shareholders and strengthening the overall financial profile of the firm. The transaction is expected to be accretive to adjusted EPS in year one for Aon shareholders, with peak adjusted EPS accretion in the high teens after full realization of $800 million of expected pre-tax synergies by the end of year three. Free cash flow is expected to break even in the second full year of the combination, and free cash flow accretion is expected to be over 10% after full realization of expected synergies, unlocking significant shareholder value creation over time. In summary, we are incredibly excited about this combination, which will build on both Aon and Willis Towers Watson's long-standing commitment to accelerating innovation on behalf of clients.
This represents another important step in our Aon United growth strategy as we continue to focus on delivering better content and capability that result in better outcomes for clients, expanded opportunities for colleagues, and improved growth for the firm against our target of sustainably delivering mid-single digit or greater organic revenue growth and double-digit free cash flow growth over the long term. With that overview, I'd like to turn the call over to Christa to walk through the transaction financials and how the strategic combination will contribute to continued shareholder value creation over the long term. Christa?
Thanks so much, Greg. As Greg and John described, this morning's announcement is an exciting next step for Aon that enables us to better accelerate innovation from both organizations and deliver complementary capabilities that unlock new sources of value for all stakeholders while improving the long-term financial profile of the firm. Greg highlighted how this transformational deal will enable us to accelerate our growth strategy for three reasons. First, our organizations' shared growth visions will allow us to build on the success of our Aon United strategy with enhanced capabilities from the combined firm. Second, we'll leverage the power of data and analytics to unlock new sources of client value. Third, we'll utilize our Aon Business Services platform to drive operational and productivity improvements and share innovation across the firm.
As we double down on our strategy, we are maintaining our ongoing commitment to our long-term financial goals of mid-single digit organic revenue growth and double-digit free cash flow growth for the combined firm. Now let me discuss the transaction and the financials. We intend to combine with Willis Towers Watson in an all-stock transaction. Each Willis Towers Watson share will be exchanged for 1.08 shares of Aon at a fixed exchange ratio. Based on ordinary shares outstanding at the time of signing, Aon shareholders will own approximately 63% of the combined firm on a fully diluted basis, and Willis Towers Watson shareholders will own approximately 37%. This represents total consideration of $231.99 per share based on Aon's closing stock price of $214.18 per share on March 6th, 2020, and implies a premium of 16.2% to Willis Towers Watson's closing share price on March 6th, 2020.
The transaction is expected to close in the first half of 2021. While this transaction is first and foremost about driving growth by increasing innovation for clients, there are also significant opportunities for efficiencies in our combined cost base, which creates significant shareholder value. We expect $800 million of annualized pre-tax cost synergies by the third full year of the combination. As Greg mentioned, the transaction is accretive to Aon adjusted EPS in year one with peak adjusted EPS accretion in the high teens after full realization of expected synergies. Free cash flow is expected to break even in the second year, with free cash flow accretion of over 10% after full realization of expected synergies. This transaction is expected to create over $10 billion in shareholder value from the capitalized value of expected synergies. Our primary assumptions are outlined on page 13 of the presentation slides.
I would note that these inputs reflect our best estimate at time of signing and are subject to change. We've chosen to provide these numbers for transparency at a point in time, but do not intend updating each bucket in the future as we integrate the firms. The baseline for accretion dilution impact was calculated using combined pro forma company projections, which represent our best estimates as of March 9, 2020. These projections incorporate long range plan assumptions from both companies and are generally consistent with analyst consensus estimates for the next two years and trenders thereafter. The main driver accretion to adjusted EPS is expected synergies, partially offset by retention costs and a portion of integration costs that will flow through operating results.
The $800 million in annual synergies are principally sourced from the consolidation of business and central support functions, including leveraging the capabilities of the Aon Business Services operational platform across the combined group and from the consolidation of infrastructure related to technology, real estate, and third-party contracts. Synergies are expected to be $267 million in year one, $600 million in year two, and $800 million of annual run rate synergies in year three. We expect $1.4 billion of integration costs to achieve these synergies, incurring $700 million in year one, $490 million in year two, and $210 million in year three. An estimated 20% of the cost in each year is expected to be reported as part of overall operating performance, and the remainder will be adjusted out of our GAAP financial results.
We also expect to incur approximately $400 million in retention costs, subject to approval by the Irish Takeover Panel, which will be spread evenly over three years and be reported as part of overall operating performance. With respect to interest expense, no incremental debt will be issued for this transaction. Turning to cash, free cash flow is expected to be dilutive in year one, primarily driven by transaction and integration costs, break even in year two, and be 5%-10% accretive in year three, with free cash flow accretion of over 10% after full realization of expected synergies and completion of spend on integration, allowing for significant investment in the business long term. We will continue to manage the firm and allocate capital on a disciplined return on invested capital basis and invest in free cash flow in the highest return opportunities or return directly to shareholders.
We are maintaining our goal of double-digit free cash flow growth over the long term. The combined firm is committed to maintaining Aon's current credit rating. Overall, this transaction will create a strong combined growth profile as the new organization brings together complementary expertise to better understand client need and accelerate innovation. The combined organization will be better positioned due to existing investments in technology-enabled analytics platforms and better placed to deliver new solutions in areas like cyber risk, intellectual property, and climate risk. This will enable us to deliver against our target sustainable mid-single digit or greater organic revenue growth over the long term. Combined with cost synergies and the opportunity to optimize operations and drive productivity through Aon Business Services, the transaction is expected to unlock meaningful shareholder value creation.
Before I open the call to questions, please be aware that while we'll do our best to provide answers, this transaction falls under Irish Takeover Rules, so there are certain limitations to the information we can provide. We've published an announcement under Rule 2.5 of those rules, which includes the information we can publicly discuss. We expect to publish a proxy in the coming months with further information. With that, I'd like to turn the call back over to the operator, and we'd be delighted to take your questions.
Thank you. We will now begin the question and answer session. For participants, if you would like to ask a question, please press star followed by the number one. Please unmute your phone and record your name slowly and clearly when prompted. Your name is required to introduce your question. To cancel your request, press star followed by the number two. Our first question is coming from the line of Elyse Greenspan from Wells Fargo. Your line is now open.
Hi. Good morning. My first question. The EPS accretion analysis, very helpful, but what we're trying to get a grasp of is, were revenue dis-synergies contemplated in this transaction? I'm not sure how much you could say there, but if you could maybe talk about some of the businesses. I'm not sure if it's Willis Re or there's other areas where there's too much overlap that you guys might be considering from a concentration standpoint, just as we think about how you guys came together on this transaction.
Thank you so much, Elyse. In terms of the synergies, under Irish Takeover Rules, I can disclose cost synergies only. What we can say is the deal is incredibly financially attractive on this basis alone. What we would say is, philosophically, as you heard Greg and John talk about, we believe there are substantial unmet demands from clients. As we accelerate innovation and develop new solutions, we expect substantial upside over time.
Elyse, maybe I'll address the second part of your question on the overall portfolio. I'll just say Listen, this opportunity for clients is terrific. We got great advice and counsel on the topic you raised, and we feel really good about this. We view the proposed transaction as highly complementary. It's a very competitive industry, and we're confident we're going to obtain all the necessary approvals across the portfolio. Really, this is about client benefit. Ultimately, it's going to be seen as something that's highly beneficial for clients over time.
Okay. Just another point of clarification. You guys reaffirmed your mid-single digit or greater organic growth target. I'm assuming you're making that comment, assuming when the deal closed that the combined firms would be able to show organic growth at least in line with the level of Aon's been showing as an independent company?
Again, Elyse, consistent with sort of this is about addressing unmet client need and how we continue to do that in a more effective way over time. We'll absolutely be reaffirming that perspective for the combined firm going forward and what we're about.
Okay. Thank you very much.
Sure.
Thank you, Elyse. Our next question is coming from the line of Meyer Shields from KBW. Your line is now open.
Thanks. I think this is a related question, but I was wondering, it seems like there are some businesses within Willis Towers Watson that Aon has decided that it does not want to be in. I was wondering if you could comment on that in general and whether the $800 million of expense synergies is growth of all of the current Willis Towers Watson business portfolio.
First of all, let me take the second one around, and Christa can add away on that as we think about the overall opportunity. This is a combined firm opportunity, full stop. Opportunity to address unmet client need together. We're very excited with John, extensive conversations with John around the combined talent of our firm as it comes together, and very much looking forward to really thinking about that as the best talent coming together from across both firms. Really, you think about the platform we're going to have in place, it's going to be very important to be able to do that on behalf of clients. We're looking forward to that against this. Excited, we think about some of the growth areas, TRANZACT. We just love that, John, tremendous effort, what you accomplished there, terrific.
Think about TRANZACT in the Aon environment on behalf of clients. Amazing. There are a few things we did. I think about CoverWallet in the context of the Willis Towers Watson environment. This is an incredible set of opportunities. Do think about it, Meyer, an overall firm, all the different pieces in terms of what we're trying to do over time.
Okay, that's helpful. Can you give us any thoughts on either the tax rate of the combined entities and/or the potential for intercompany debt?
Yeah. Meyer, we don't give forward tax guidance. What we have disclosed previously for Aon is historically over the last three years, our underlying tax rate net of discrete items, which can be favorable or unfavorable, was approximately 18%. I do note on the Willis Towers Watson Q4 earnings conference call, management stated their firm's underlying tax rate, excluding discrete items, was approximately 21%, and that they expected the 2020 underlying tax rate, excluding discrete items, to be around 20%. We're not giving guidance going forward for the combined firm.
Okay, good. Thanks so much.
Thank you, Meyer. Our next question is coming from the line of Jimmy Bhullar from JPMorgan. Your line is now open.
Hi, good morning. First, you mentioned some of this in your comments as well, I think I can understand the rationale for the deal in terms of scale and expense savings. If you think about Aon's business currently, you're one of the top companies in most of the business lines you're in. What are the capabilities that you don't have currently that this deal adds? I think you mentioned you expect this to allow you to grow even faster. I'd assume normally the bigger you get, the slower the growth would be.
Jimmy, this is such an important question. I want to offer a thought. I want to get John's thought on this too. This isn't about bigger, as we described. This is about better. If you step back and think about client need and unmet client need and ask a question, how have we done over time as an overall industry against addressing continuing increasing client need? If you look at different metrics, think about literally claims as a % of GDP. That's a percentage that went up for 30 years up to 1990. Literally, Jimmy, every decade, every year since, for 3 decades, it's gone down. It's hard not to come to the conclusion that overall, as an industry, we're not progressing as fast as our clients on a lot of the topics that are important to them.
This effort, this combination, is about how we address unmet need. When you think about the ability to come together in cyber and really address holistically the challenges of cyber. Instead of a $6 billion market, it's more like a $20 or a $30 or a $40 billion opportunity for our clients in terms of where they are. Think about our client demands and things like intangible assets and how we can address unmet needs on intangible assets. That's an area that's 85% of their value across the S&P 500. Our industry hasn't done really anything about it. This is really about not the existing pie and the zero-sum game in that in any way, shape, or form. This is about how we think about unmet need and how we think about overall how we address that in a much more holistic way.
Just one other one that I know is near to John's heart, this whole idea of retirement and health. The fact of the matter is our clients' employees are overspending on health on average and underspending on retirement. Think about if we can actually adjust that, turn that dial just two notches on their behalf in a more attractive way. We change the lives of families over the course of a decade or two decades. This is what this combination's about. John, you've thought about this a lot as well.
Thanks, Greg. I fundamentally, as you know, agree with everything you just said about the transaction, and particularly the important point. This isn't about getting bigger. In fact, the most attractive part of this combination is the fact that we bring together some complementary capabilities. Jimmy, you asked about data and analytics. I think when I look at that, what Aon brings to the table in terms of some of the data analytics, particularly with regard to information they can supply to carriers, just fantastic stuff. When I look at some of the data and analytics that we bring together that we can deliver to clients, particularly from our insurance consulting and technology, it's a great fit with the capabilities they have.
I think to us, the exciting thing is it's partly about that complementary nature of that, but it's more important that together we can build new things and deliver new value to clients. The whole premise about this merger is not about where we are today. It's about where we can be in the future.
Okay, another question just for Christa. On your current financials, you've been obviously pretty active in buying back stock. I think you bought close to $2 billion last year. Are you expected to, or are you continuing to buy back stock as you go through this year? Should we assume that that's going to slow down or accelerate, any other impacts on your financials going into the deal close? I think you said middle of next year.
Yeah. We do expect the transaction to close in the first half of 2021. Jimmy, as we manage through 2020, we continue to manage capital on a return on invested capital basis and allocate capital of the highest return opportunities. Share repurchase remains Aon's highest return opportunity, we'll continue to repurchase shares in 2020, similar to 2019, subject to U.S. securities law limitations. We are managing our capital structure to maintain our current credit rating, it's likely acquisition spend will slow compared to our original plan.
Okay. Thank you, good luck.
Thank you, Jimmy. Our next question is coming from the line of David Styblo of Jefferies. Your line is now open.
Hi there. Good morning. Thanks for the questions. Curious in terms of the rationale and timing and so forth, appreciate the comments there, Greg. Curious, why now versus a year ago? Was it just you didn't have enough time to get through some of the things, the locking and tackling of potential transaction, or is there something that has changed? Obviously, I think Willis Towers has gotten a little bit more steady and consistent with its performance of delivering on organic growth and margin expansion, curious why now versus a year ago?
Really, completely separate discussions. What we just announced today was governed completely and in full compliance with the Irish Takeover Rules in terms of sort of where we are, there's a limit to what we can say today, there's a lot more context you'll see in the proxy filing coming up. I would just say this, we know each other well, this came together relatively quickly based on our knowledge. Just as John, I think described so well, it was really about the opportunity to address unmet client need and increasing relevance on their behalf. It came together relatively quickly.
Okay. That was actually parlay to the second question was in terms of the cost synergies, I'm curious how you guys went about scoring that, how much time you had. It sounds like you didn't have maybe as much time on this at this end, but can you talk about the process? Maybe this question for Christa, of how you looked at achieving the cost synergies, you guys have obviously done a good job of delivering upside to that. I suspect that you just have an opportunity to take a high-level view, curious how deep you got into it and if you think there's potentially upside to that savings target in the out year.
Dave, we have got an incredibly detailed synergy model, it's actually gone through an amazingly detailed process in the U.K. called expertization, which really kicks the tires on these synergies in an incredibly robust way. What we would say is we feel really good about delivering these synergies by the third full year of the combination. There's no upside that we expect. We are very experienced at integrating significant transactions, such as Benfield and Hewitt, these expectations of cost synergies are very much in line with those transactions.
I might add to that, if you think about it, again, as John highlighted, there's a lot of expertise on both sides as sort of combinations come together. We've got a joint team really thinking about how to pull this off. Then we come back to the Aon United blueprint and what we've done together at similar to undertakings by Willis Towers Watson as well. We've got a template on how we're going to apply all these opportunities across the combined organization.
Okay, great. Then one last quick one. I know, Greg, you talked about the industry not keeping up with some of the things on the client side and just not able to go fast enough. What does the deal give you additional capabilities on? Is that more just for drawing on the expertise that Willis has in areas that you don't? Or is it more so some of the gross cost savings that you'd be reinvesting in the business?
Yeah. Literally, Dave, this is such an important part of this discussion. I'm so glad you came back to this. This is about how we address unmet client need across the board in so many ways. Consider our ability, as I described, on just pick topics and the complementary capabilities that Willis Towers Watson brings to the table, the talent that comes to the table. Day one, we're going to be stronger and better, more capable to address areas like climate change based on sort of the capability and expertise that is within Willis Towers Watson. On the health side, when you think about sort of what the investments have been made by Willis Towers Watson on that, they truly complement the investments we've made tremendously important in terms of client need.
On the retirement side, the opportunities as we think about the retiree population and how we address that group, again, another set of opportunities. From overall looking at different client needs, whether it's large clients or medium-sized clients, we bring complementary capabilities. Just the analytic capability that the combined firm brings to the table also continues to build. As you said, we'll be able to invest in that capability and continue to build it. This is what really got us excited, I think what got John excited, this is what we think our combined talent base, our colleagues around the world are going to see this. They're going to see an ability to have more impact with clients in a very effective way. That, we think, is going to be very compelling for them.
Our clients are going to see this as tremendously supportive of them. Our colleagues are going to see it as something that's really inspiring, that's really what we're pretty excited about. Candidly, it shows up in all aspects of risk. It shows up in reinsurance, it shows up in retirement, it shows up in investments, it shows up in health. We see this really across the board. John, anything else you'd add to that?
No, I think you nailed it, Greg. We're excited about this across the whole range of the portfolio. The comment I'd come back to is this is about getting better, and it's about being better able to serve clients and leading to better outcomes for them.
Okay, great. Thanks.
Thank you, David. Our next question is coming from the line of Sunit Shamas. Your line is now open.
Thanks. Good morning. I wanted to come back to Elyse's question about potential revenue dyssynergies and just make sure I understand what the answer was. Is it that you're not able to disclose any revenue dyssynergies, or you do not expect there will be any revenue dyssynergies? Also curious if you've had a look at what the client overlap is between the two firms.
We do not expect, based on the complementary nature of our client base, to experience revenue dyssynergies. What we have disclosed under Irish Takeover Rules is cost synergies. We believe that the deal is financially attractive, in fact, very financially attractive based on that alone. What you've heard John and Greg say during the call today, and obviously throughout the materials we've posted, is we believe there's substantial unmet client need and therefore substantial upside opportunity over time.
On the client overlap?
We do believe that the businesses are very complementary. I think John and Greg have talked about quite a lot, whether that's by country or whether that's by client segments. A lot of the capabilities actually complement each other. We're very excited about the potential upside.
I think what Christa was highlighting is, listen, we are restricted, very restricted in our conversation today, and there'll be more over time in the proxy in other areas. Step back away from this transaction completely and just think about the idea of as you bring firms together, they're always going to be back and forth. What I think you're picking up is when you net it all and ask the question, opportunity to support clients in a more effective way, and then obviously there are strains that come with that, the overlaps you're describing. I think on balance, we're essentially not for this, but over time, as you think about how this has come together, if you look at John's historic achievements and ours as well, these all come together in a way that we think on balance, is an opportunity for clients.
That's what we reflected for us. Not trying to be cryptic here, just trying to be very clear in terms of what we can say at this point.
Got it. Makes sense. How do we think about any antitrust issues that may come up with such a large combination?
As I said before in terms of where we are in that process, we've had great counsel on the topic, and we really feel good about this. The proposed transaction is highly complementary, it's a very competitive industry. Ultimately, you're going to get to your reflection, clients are going to see a greater opportunity, and benefit really, more than anything else in terms of what this comes out of.
Okay, thanks.
Thank you. Our next question is coming from the line of Paul Newsome from Piper Sandler. You may begin.
Good morning, and thanks for the call. I'm getting some questions that seem to suggest that there's some confusion about exactly which regulatory body is the constraining regulator and how that also relates to divestitures. Could you just talk about who are the primary regulators here? Is the U.S. regulator that involved in this situation as well? Just the process is what I'm asking for.
Let me offer the overview, Christa, you can talk about this from an overall antitrust standpoint. There's no constraining here. It just is what it is, and we're working very well underneath the overall Irish Takeover Rules and takeover codes. That's the overall piece. As it relates to antitrust.
What I would say is three different regulatory interplays here. The first is we're governed by Irish Takeover Code and the Panel. That's the body under which we filed the merger agreement, Rule 2.5 we filed today. The second thing I'd say is we're obviously filing a proxy because we're both listed in the U.S., and that's under SEC guidance. The third is, we'll be applying for regulatory approval in lots of countries around the world. That's how all that knits together.
Great. Thank you. That's all I had. Appreciate it.
Thank you. Our next question is coming from the line of Brian Meredith of UBS. Your line is now open.
Yes, thanks. Just one or two quick ones here. Greg, just curious, you talked a little bit about businesses maybe that are complementary. How about geographically, how this is going to add to Aon as you put yourself together with Willis Towers Watson? Any areas particularly we should think about if it's Better from emerging markets, et cetera.
Well listen, Brian, terrific question. Again, back to the complementary capabilities as they come together. As you know well, and you think about around the world, the world of risk is very under-represented in certain parts of the world. All of us are frankly under-represented in terms of being able to address client needs. Together we'll be stronger and able to do that certainly in the emerging markets very positively. Frankly, there are also some geographic footprints in which we grew up and have some unique assets in certain parts of the world. Willis Towers Watson and other parts of the world, and they're going to come together now. For us, we think there's benefit here for clients around geographic support, and as John highlighted, also around content and capability support. It really is across the board.
Great, thanks. Just wanted to just throw it in there. Any thoughts with respect to economic slowdown or anything potentially disrupting this given what's going on right now with the coronavirus?
Well, listen, Brian, we've thought about that a lot as you might imagine. Listen, from our standpoint you got to come back to your mission and what you're about. The world's a difficult and complex place, we know that, it's becoming more so. In times of turmoil, listen, who better than us? This is what our mission's about, to help clients address challenges, to address unmet demands, find opportunities where we can. Frankly, we're serious about our mission. We're going to always make investments to strengthen our capability on their behalf when they present themselves. Priority one for us is addressing the needs of our clients in a challenging world. This is about this idea of relevance and building a more capable firm. It's not about what's happening in the market today or next week.
It's about what we're doing for them over the long term.
Great. Thank you.
Thank you. Our next question is coming from the line of Mark Marcon from Baird. Your line is now open.
Good morning. Thanks for taking the questions. Both Willis and Aon have had lots of experiences with regards to transactions of this nature. I'm wondering with the combined learnings, is there a possibility that some of the synergies that are anticipated could potentially come through a little bit faster?
Well, listen, we're hopeful. I think in the end, this is what's been so positive around. I mean hopeful in terms of what we can do together. Christa will comment on the timing specifically on the synergies in a second. We're hopeful in terms of, and excited and expecting. There's tremendous knowledge. Just listening to John Haley talk about how Willis Towers Watson's come together beyond just the primary brands, but other support as well, it's been terrific. We bring a fair amount to the table also. What we've agreed to underpinning all this is a principles-based approach against a common DNA and what we're trying to do to develop our talent across both firms. We think that's going to be inspiring for our colleagues around the world.
We think they're going to see something here that candidly is going to be better than anything we've done at Aon and hopefully better than anything that happened over time with Willis Towers Watson because our common set of colleagues are going to see something in it in terms of their ability to help clients that's different than anything before. We have high expectations. We'll see where we get to. Specifically on the timing of the synergies, Christa?
Yeah. Look, I think it's a great question because we've had a lot of experience on both sides at delivering synergies and doing a very good job, and we're very impressed with the Willis Towers Watson leadership team and working through these synergies with them, we've become even more impressed. We do expect to deliver $800 million of annualized pre-tax synergies by the third full year. We do expect them to come through exactly as we'd outlaid, $267 million in year one, $600 million in year two, and $800 million in year three. We're really looking forward to working through this with Willis Towers Watson leadership team. It's an incredibly impressive team with great expertise and depth of experience in this area. I think it's a great point.
Great. Then second follow-up question is Willis obviously has a lot of very attractive properties and practices. Is there any contemplation that anybody else might potentially enter into the fray given the attractiveness of Willis and how well it's regarded?
Well, I would just emphasize Christa's point, John certain comment as well. We have long admired the capability and colleagues around the world and the platform of Willis Towers Watson. To me that's why we see the complementary nature of the two groups coming together and what we can do. Again, we have very high aspirations on what we're trying to do to support unmet client needs around the global economy. Our job's not even a quarter done, not even a third done, right? It's not done at all. We've got so much opportunity. We think that's going to be pretty compelling for our clients. I think they're going to look at this and our aspiration is clients look back in 10 years and say, "This is a step.
This is a step that made a meaningful difference in our industry's ability to help meet their needs." Many others will follow and benefit as well. We believe our clients will see that as very important. Because of that, our colleagues, one of the things that's similar for all of our colleagues around the world, whether they be at Aon or Willis Towers Watson, when you're helping clients succeed, that's always a good thing. That actually draws people together. We see that as a real opportunity, and we hope that there's inspiration on both sides of this.
Yeah. Greg, I'll just add, and Mark, my view about mergers is that the three things you should think about in this order are first culture, and then strategy, and then the financials. If I think about the culture, one of the things that's been so attractive to me and the rest of the Willis Towers Watson leadership and our board is the shared vision that we have between Aon and between Willis Towers Watson. When you look at things like the
Aon United strategy and the Aon United brand. When you look at the way Aon positions itself as a global professional service firm, it's exactly the direction we've been headed in Willis Towers Watson. We look at this as joining up with a firm that shares the same thoughts about the culture and structure, and it should be relatively easy. I mean, as easy as these things ever are to do that. When I look at strategy, I talked earlier about the shared vision, and Greg and Christa and I have spoken on this call about the shared vision of the market and about unmet client needs and about what we're building.
When I look at those things and I see how the two firms match up and why the deal is attractive, it's hard for me to imagine anybody else matching up in that way.
John, thanks a lot for the perspective, and congratulations to you and the entire team.
Thanks, Mark.
Thank you, Mark. Our next question is coming from the line of Tobey Sommer from SunTrust. Your line is now open.
Thank you. I was wondering if you could comment on the opportunity for direct consumer-facing businesses which Willis Towers Watson recently entered into with TRANZACT, and what opportunities may be in front of the combined company.
I'll offer an overview, John, to chime in as well. Again, I welcome back. When we saw the TRANZACT opportunity, we loved it then. We are learning more about it, love it even more. You saw us start with CoverWallet, how we brought in a unique skill set and capability that we think will really kind of radiate across the firm in a way that will help our clients. Then our overall analytic capability we have we think combined could even be better. Again, this is back to matching capital with risk. By the way, risk is retirement, investment, health, all aspects of that. When we can bring solutions to capital bear and actually improve operating performance or strengthen balance sheet or reduce volatility, this is a wonderful thing, and we see opportunities across the spectrum on it.
Yeah, I would agree with that, Greg. I think if you think about the direct-to-consumer market, it's the kind of market that traditionally it's been harder for firms like ours to address because of the capabilities you need. In today's technology-enabled world, I think we're finding that this is a market that we can potentially address. We're excited about that. I think one of the things that's particularly exciting, whether you're talking about CoverWallet or whether you're talking about TRANZACT or any of these forays into the direct-to-consumer market, this is where innovation occurs first. It doesn't occur at the big companies in general. It occurs on the interactions with the individual, and then you can scale that up. I think that's something that we're excited about for the new organization.
Thank you.
Thank you. Elyse Greenspan from Wells Fargo will be our last question. Elyse, your line is now open.
Hi. Thanks for taking the follow-up. Just a couple of tie-up questions. My first question why is it going to take over a year to close this transaction? Are you guys just being conservative in terms of the whole regulatory process?
Yeah. Elyse, the next steps for us are in a couple of months, we'll file a proxy, then about six months after that, we expect shareholder approval, then it will take quite some time to get regulatory approval in all the countries. There's almost 100 countries that we require regulatory approval in. We feel confident about meeting the time period of first half of 2021. We'll work hard to deliver that. It does take time in all these different countries.
Okay, great. My second question. Greg and Christa, you guys have both done a great job at Aon in terms of improving the free cash flow generation of the firm. Willis has obviously been a goal of the firm over the past couple of years, obviously that was pushed back a little bit in terms of their 2019 results and 2020 guide. Can you just give us a sense when you were going about putting together this transaction, just the views that you had surrounding the free cash flow there and your ability to get that conversion higher to drive towards the metrics that you laid out in this transaction?
Elyse, we absolutely thought about this transaction from a free cash flow point of view. It's how we evaluate all uses of cash, as you know, and we're very focused on making sure that the combined firm has high recurring revenue and a focus on converting each dollar of revenue into the highest level of free cash flow. We do expect that free cash flow will break even in year 2 and be accretive in year 3 and have accretion of over 10% after full realization of expected synergies. It's a fantastic free cash flow story, which allows us to generate substantial free cash flow going forward and allow us to disproportionately invest in new areas of innovation with clients. We're really excited about that.
I'm going to just a couple of thoughts that it's really important, Elyse, as you highlight sort of what governs what we do and how we're doing it. Listen, it's been a privilege working with Christa for going on 15 years around governing Aon. It really was 2 principles. 2 principles, delivering distinctive and sustainable value for clients, first and foremost, measured by the way their needs, not our competitors, not who's ahead, meeting the needs of clients in a very distinctive and sustainable way, and then operating in a manner in which delivers exceptional and increasing return on invested capital on a cash-on-cash basis. You do that, by the way by making opportunities available for colleagues that are absolutely unmatched. That's how that all fits together. It's essentially clients and colleagues, and colleagues are really absolutely paramount, sort of front and center in that process.
If you think over the years, we've made many structural steps. We've taken these that raise questions every time we take them by investors and others at the time. Ultimately, as you've highlighted, they've been meaningful in our development. Benfield, Hewitt, or the outsourcing decision, redomiciliation. All these things have sort of been structural changes in addition to continuing to operate the business better. I would say as we looked at it, Christa and I looked at it, our team looked at it, our board looked at it, we think this combination is going to be the most meaningful in our history in terms of accelerating our Aon United growth efforts. Really ways that, in our view, no other single asset could do in any way, shape, or form. No one could come close in terms of content, capability, talent, et cetera.
It really, in our view, is going to deliver exceptional value for shareholders. It comes right back to return on invested capital, right back to free cash flow in every way, shape, or form. It really, again, comes back to the value of addressing unmet needs on behalf of clients, which we think is exceptional. A little long, but that's really what's governed this entire process. As you can tell, and I think you can tell from John as well, we're all pretty excited about this.
That's helpful. One last question just to clarify on slide 13 in terms of the accretion. I think you said that that was using, I believe, consensus estimates for the next couple of years for both companies. Is that using consensus EPS, or are there some internal figures like tax rate that might vary from what the street is projecting? I just want to make sure I understood that comment correctly.
Yeah. Elyse, the baseline derived for the accretion dilution impact is calculated using combined pro forma company projections, which represent our best estimates as of March 9, 2020. These projections are based on the long-range plan for both companies as required by the Irish Takeover Code. They're generally consistent with analyst consensus estimates for the next two years and trended thereafter.
Okay, that's helpful. Thank you very much.
Thanks, Elyse.
Thank you, Elyse. I would now like to turn the call back to Greg Case for closing remarks.
I just want to thank again, everybody, for gathering on such short notice. We really appreciate it. forward to the next conversation. Sorry. I think I just got cut off there. No problem. Let me just try that again. It was brilliance, by the way, if you were wondering. I just wanted to say a couple of thank yous. One of the thank yous was to John, for all you've done to help bring all this together. We truly appreciate it. It's really been wonderful. To our future Willis Towers Watson colleagues, truly looking forward to this journey together. For our clients who might be listening in, this is about you. This is all about you, and we look forward to supporting in any way we can. Thanks very much for being part of the call.
Thank you, that concludes today's conference. Thank you everyone for joining. You may now disconnect.