Aon To Acquire Benfield For $1.75B

Chicago-based Aon insurance brokerage will purchase Benfield Group Ltd., the London-based reinsurance brokerage, for $1.75 billion (?935 million) and the assumption of $170 million of the company's debt.

The cash deal represents a purchase price of $6.55 (?3.50) a share for shareholders, 29 percent above the closing price of Benfield's closing stock price yesterday.

The deal, which puts together two companies that fought a court battle over staff recruitment, is expected to be completed by the end of this year with cash on hand, Aon said.

Staff cuts were not mentioned, but the companies said the transaction will result in savings by trimming shared services.

During a conference call with investment analysts this morning, Greg Case, Aon Corp. president and chief executive officer, and Grahame Chilton, Benfield CEO, said the compelling reason for the merger was the complementary nature of the two businesses.

The two executives stressed that the firms complement one another with strong involvement in markets that the other is not in. Mr. Chilton characterized the resulting combination as a jigsaw puzzle that had pieces missing from the landscape filled in.

"The team will be delighted by this transaction," said Mr. Chilton, noting it recognizes the intrinsic strength of Benfield and provides shareholder value.

He said it will also give employees greater opportunities for growth and there is little business overlap. Mr. Case noted that where Aon is strong in the reinsurance casualty end of the market, Benfield's strength is in property. Benfield also has strength in Asia.

"We are very enthusiastic about this agreement and our partnership moving ahead," said Mr. Case. "Aon and Benfield's franchises are highly complementary...and this transaction provides a very unique opportunity to build on Benfield's strengths...to develop our business around the globe."

Mr. Case said plans call for integrating existing Aon business with Benfield and operating the firm under the name Aon Benfield Re. The deal is expected to save $122 million in annual costs by 2011 with the elimination of shared administrative and support services.

According to the two firms the deal will also:

o Allow for the development of markets in Asia, Central and Eastern Europe, Africa and Latin America. Benfield already has a presence in Japan and other Asia markets.

o Improve technology in global analytics, modeling and customer service where Benfield has the edge.

o Grow Aon's property-catastrophe presence in Florida and the Southeast.

o Increase the customer base for both the insurance and reinsurance brokerage business.

When asked why the deal should be made now, Mr. Chilton said the primary driver was to increase shareholder value and improve customer service.

He said it was not driven by the view that the reinsurance market is in decline or that it was difficult to remain independent. He also noted that in partnering with Aon, Benfield will have greater access to the capital markets, noting the firm has limited itself to the stock markets in the past.

Under the deal Mr. Chilton will become vice chairman of Aon Group, reporting to Mr. Case. He will also join the executive committees of Aon Corp. and Aon Benfield Re. Michael O'Halleran, executive chairman of Aon Re Global, will be named executive chairman of Aon Benfield Re, and Andrew Appel will be named CEO of Aon Benfield Re and remain as chairman of Aon Consulting Worldwide.

The Benfield Web site says the firm was founded in 1973 as Benfield, Lovick and Rees & Company Ltd. The Benfield Group was created in 1988 after a management buyout that included Mr. Chilton. It became a public company in 2003 when it was listed on the London Stock Exchange.

Last year, Aon paid Benfield $18.4 million to settle accusations that Aon did economic damage to Benfield by illegally poaching employees and business from Benfield's facultative reinsurance department.

Benfield has fought off acquisition rumors in the past, most notably in 2002 when it publicly denied it was in talks to merge with insurance broker Marsh.