Insurance brokers Aon and Willis Towers Watson said on Monday they had agreed to terminate their $30 billion merger agreement and end their litigation with the U.S. Department of Justice.
The deal would have put London-headquartered Aon ahead of the world's largest insurance broker Marsh & McLennan.
"Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice," Aon Chief Executive Officer Greg Case said in a statement.
Aon will pay $1 billion as a termination fee to Willis, it said.
In June, the Department of Justice (DOJ) had sued to block the deal, saying it would reduce competition and could lead to higher prices.
The DOJ had alleged that combining the two large insurance brokers would harm competition in reinsurance broking, retirement and pension planning and private retiree multicarrier healthcare exchanges.
A federal judge had narrowed the scope of the lawsuit last week, which came after Aon and Willis agreed to divestitures to win approval in the United States and Europe after discussions with regulators.
The divestitures included Aon's U.S. retirement unit, U.S. retiree healthcare exchange and retirement business in Germany. Also included was Willis Towers Watson's global reinsurance business. EU antitrust regulators approved the merger earlier this month conditioned on some of the sales.
Aon ranks second and Willis fifth among U.S. commercial insurance brokers in the U.S. market, according to a survey by Business Insurance magazine.
The other largest brokers in the United States are Marsh & McLennan, Arthur J Gallagher and Alliant Insurance Services.
In April, insurance company Chubb said it was no longer looking at buying smaller rival, Hartford Financial Services, after the latter rebuffed Chubb's takeover bids post declining to engage in talks on the $23.24 billion buyout proposal.
Aon's shares were up 4% at $242, while Willis Tower's stock was down 3.5% at $218 in premarket trading.