Aon to Acquire Benefits and 401(k) Firm Hewitt Associates

Big insurance broker will pay $4.9 billion in cash and stock

By Trevor Thomas, National Underwriter Life & Health

Chicago-based Aon Corp will acquire Hewitt Associates Inc., based in Lincolnshire, Illinois (NYSE:HEW), and merge Hewitt into the Aon Consulting unit in a deal with a value of about $4.9 billion, the companies said Monday, July 12, in a joint announcement.

Aon is set to pay $50 per Hewitt share with a 50-50 blend of cash and Aon stock. Hewitt shares closed at $35.40 on July 9.

To complete the deal, Aon and Hewitt need approvals from the shareholders of both companies as well as from regulators. The companies hope to close on the transaction in mid-November.

If the deal is completed as planned, Hewitt Chairman Russell Fradin will become chairman of a new Aon Hewitt consulting unit and report to Aon Corp. Chief Executive Gregory Case, according to Aon and Hewitt.

Aon has more than 36,000 employees in more than 500 offices over 120 countries. The company as a whole reported $792 million in net income for 2009 on $7.6 billion in revenue; the company's consulting and outsourcing business reported $203 million in operating income on $1.3 billion in revenue.

Hewitt was established in 1940 and now employs about 23,000 individuals worldwide. It reported $265 million in net income on $3.1 billion in revenue for its 2009 fiscal year, which ended Sept. 30, 2009.

Aon Consulting's corporate clients tend to be midsize employers; most of Hewitt's clients are large corporations.

The combined Aon Hewitt business would have 29,000 employees and $4.3 billion in annual revenue, according to Aon and Hewitt. About 49% of the revenue would come from consulting, 40% from benefits outsourcing, and 11% from human resources process outsourcing, the companies say.

To pay for the deal, Aon would issue $2.5 billion in new stock, take out a $1 billion, three-year bank term loan, and use $1.5 billion in bridge loans, according to a financing document Aon and Hewitt have filed with the U.S. Securities and Exchange Commission.

Aon says it expects to cover part of the cost by issuing unsecured notes.

Moody's Investors Service, New York, responded to the announcement by affirming the Baa2 rating it has placed on Aon's senior unsecured debt and changing the rating outlook to negative, from stable.

The proposed deal would expand Aon's human resource consulting and outsourcing capabilities and give the company a more balanced mix of insurance brokerage and consulting revenue, according to Bruce Ballentine, Moody's lead analyst for Aon.

On January 1, 2010, two other large human resources consulting firms merged: Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide Inc. to form Towers Watson & Company, New York. merged Jan. 1.

This story originally appeared in National Underwriter Health & Life.

Read a story with insights from a Hewitt Associates researcher on healthcare reform from the archives of InvestmentAdvisor.

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