NU Online News Service, July 12, 11:00 a.m. EDT

Aon Corp. said it will acquire human resource and outsourcingconsulting firm Hewitt Associates Inc. for approximately $4.9billion in a combination stock and cash transaction.

The Chicago-based insurance broker said it will pay $50 a sharefor Lincolnshire, Ill.-based Hewitt, representing a 41 percentpremium to the company's closing stock price as of July 9. Aon saidthe deal would consist of a 50-50 split in cash and Aon stock.

Aon said it intends to integrate Hewitt with its existingconsulting and outsourcing operations and operate the company underthe name Aon Hewitt. The deal is expected to close by mid-Novemberpending regulatory and stockholder approval.

Russ Fradin, chairman and chief executive officer of Hewitt willbe named chairman and chief executive officer of the newsubsidiary.

"As we continue to grow our business, this merger will give us abroader portfolio of innovative products and services focused onwhat we believe are two of the most important topics in the globaleconomy today--risk and people," said Greg Case, Aon's CEO in astatement.

Mr. Fradin said the deal would give its clients more servicesand provide greater opportunities for its associates.

Aon said it will pay $2.45 billion in cash and the rest instock. It has set-up loan commitments from Credit Suisse and MorganStanley for a three-year $1 billion bank term loan and a $1.5billion loan facility, but expects to issue notes before drawing onthe bridge loan.

During a confercent call with investment analysts, ChristaDavies, Aon's cheif financial officer, said by 2013 the $1 billionterm loan is expected to be paid leaving just $1.5 billion loanfacility. She said the company does not plan to draw on that loanbecause the notes should be in place.

The merged companies are expected to generate $4.3 billion andconsist of 29,000 associates globally. Revenues will consist of 49percent consulting services, 40 percent benefit outsourcing and 11percent from human resources.

The combination of large corporate and middle market clients isexpected to provide significant cross-selling opportunities, Aonsaid, with Hewitt bringing in a large corporate client basecomplimented by Aon's middle market accounts.

A reduction in back-office areas, public company costs,management overlap and leverage of technology platforms is expectedto generate approximately $355 million in savings annually.

Aon said it expects the deal to be accretive to earnings by2012.

In separate filings with the Securities and Exchange Commission,Aon said that the deal would make it a $10.7 billion business with59,000 colleagues working in 120 countries. Aon said the deal wouldmean that the company would become number one in risk solution,reinsurance and human capital solutions.

As for the future of employees with the companies, Aon said itcould offer no answers until after the deal is complete.

"It is inevitable that there will be some job losses, but wewill handle these situations with fairness and respect for thoseassociates," the company said in one filing.

According to another filing, if Hewitt terminates the mergeragreement under "certain specified circumstances," Hewitt must payAon a termination fee of $85 million or $190 million, depending onthe reason. If Aon terminates the agreement, the broker will pay atermination fee of $190 million. However, if the agreement isterminated because Aon could not obtain the required financing, thetermination fee will be $225 million.

During the conference call, both Mr. Case and Mr. Fradin wereupbeat about the future of both companies. Both said that Hewittwas not shopped around and that Aon approached Hewitt about amerger.

Mr. Fradin said was never for sale, but after long discussionswith the board it was felt there were "compelling reasons to dothis" primarily improve shareholder value.

In a report later today, Moody's Investors Service affirmedAon's debt rating but changed the rating outlook from stable tonegative. The rating service cited the large amount of debt thebroker was taking on with the move and the execution risks of sucha transaction.

Bruce Ballentine, Moody's lead analyst for Aon said theacquisition would shift the revenue mix from 83 percent insurancebrokerage and 17 percent consulting to 60 percent brokerage and 40percent consulting.

This story was updated at 12:15 p.m. EDT