Aon Plc said it’s no longer pursuing a combination with rival insurance brokerage Willis Towers Watson Plc, a day after confirming that it was considering a tie-up.

The company said on Tuesday that it was in the early stages of exploring an all-share tie-up with Willis Towers after Bloomberg reported the potential plans. The companies held preliminary talks and Aon was preparing to submit a bid in the coming weeks, people familiar with the matter had said, asking not to be identified as the details aren’t public.

Aon shares fell 7.8 percent in New York on Tuesday, its biggest decline since 2009. A potential combination with Willis — which gained 5.2 percent and had a market value of $23.5 billion at the close of trading — could have been the industry’s largest-ever merger. Willis’s shares declined about 4 percent in early trading Wednesday.

Wednesday’s Statement

Aon was required to issue Tuesday’s statement because Willis Towers Watson is subject to Irish regulatory requirements, and Aon said it had to make the disclosure “at a very early stage in the consideration” Aon said it reserves the right within the next 12 months to set aside Wednesday’s announcement where permitted under Irish Takeover Rules.

Analysts Say

Wells Fargo said regulatory issues would be a big overhang for any deal between Aon and rival Willis Towers given the size of the two companies, which are the second- and third-largest insurance brokers. Aon and Willis Towers’s “potential transaction would put together two very large global insurance broking companies that are also engaged in a number of human resources and management consulting practices,” Harry Fong, an analyst at MKM Partners, said Tuesday in a note to clients. Buying Willis Towers might enable Aon to overtake Marsh & McLennan Cos. as the world’s largest brokerage by revenue, according to data compiled by Bloomberg.

Background

Brokerages, which help connect businesses looking for coverage with insurers, have been aggressively merging to diversify, boost commissions and serve customers who increasingly want to deal with fewer intermediaries. Deals in the broker space accounted for most of 2018’s insurance deals in the U.S. and Bermuda, according to a report from Deloitte. Those deals were on average smaller than many transactions for underwriters, meaning the total value of brokerage deals accounted for just 16 percent of total transactions in the space. The industry started 2019 with a sizable deal. Private equity firm GTCR LLC and other buyers agreed in February to buy a majority stake in AssuredPartners Inc. from Apax Partners. That transaction valued AssuredPartners at about $5.1 billion, according to people familiar with the matter.

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