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

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

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

Aon said it intends to integrate Hewitt with its existing consulting and outsourcing operations and operate the company under the name Aon Hewitt. The deal is expected to close by mid-November pending regulatory and stockholder approval.

Russ Fradin, chairman and chief executive officer of Hewitt will be named chairman and chief executive officer of the new subsidiary.

"As we continue to grow our business, this merger will give us a broader portfolio of innovative products and services focused on what we believe are two of the most important topics in the global economy today--risk and people," said Greg Case, Aon's CEO in a statement.

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

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

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

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

The combination of large corporate and middle market clients is expected to provide significant cross-selling opportunities, Aon said, with Hewitt bringing in a large corporate client base complimented by Aon's middle market accounts.

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

Aon said it expects the deal to be accretive to earnings by 2012.

In separate filings with the Securities and Exchange Commission, Aon said that the deal would make it a $10.7 billion business with 59,000 colleagues working in 120 countries. Aon said the deal would mean 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 it could offer no answers until after the deal is complete.

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

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

During the conference call, both Mr. Case and Mr. Fradin were upbeat about the future of both companies. Both said that Hewitt was not shopped around and that Aon approached Hewitt about a merger.

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

In a report later today, Moody's Investors Service affirmed Aon's debt rating but changed the rating outlook from stable to negative. The rating service cited the large amount of debt the broker was taking on with the move and the execution risks of such a transaction.

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

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

Special Reports /

Aon To Acquire Hewitt Associates In $4.9B Deal

Related Stories

Recommended For You