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Aon to Buy Hewitt Associates in $4.9 Billion Deal

Source: WSJ

Posted on 12 Jul 2010

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World insurance broker Aon Corp. agreed to buy human-resources firm Hewitt Associates Inc. in a cash-and-stock deal valued at about $4.9 billion.

The deal, the largest in Aon's history, will nearly triple the size of the company's human-resources operations, making it a $4.3 billion business by revenue. Aon Hewitt, as the combined consulting and outsourcing operations will be known, will be run by Hewitt Chairman and Chief Executive Russ Fradin.

The transaction, expected to close by November, values Hewitt at $50 a share, a 41% premium over Friday's closing price. The announcement sent Aon shares down 5.8% to $36.10 in morning trading, while Hewitt jumped by a third to $47.30.

Aon, under Chief Executive Greg Case, has acquired dozens of firms to expand its insurance and human-resources arms. The Hewitt deal dwarfs the Chicago-based company's previous largest deal, the $1.4 billion acquisition of reinsurance broker Benfield Group Ltd. in 2008.

The Hewitt deal will give Aon a human-resources operation to rival that of competing brokerage Marsh & McLennan Inc., whose Mercer and Oliver Wyman units had combined consulting revenue of $4.6 billion in 2009.

"Aon is focused on being the preeminent professional-services firm in the world," Mr. Case said in a conference call with analysts and investors early Monday. "You could not have picked a better partner as we continue the journey" toward that goal, he said.

Aon will pay $2.45 billion in cash, with stock making up the rest. Unless they request otherwise, stockholders would get $25.61 and 0.6362 share of Aon stock for each share of Hewitt.

The deal would cut into Aon's profits next year but they would still rise slightly absent restructuring-related charges. Profits on both bases are projected to increase at Aon starting in 2012 as a result of the acquisition.

The companies expect the deal to save about $355 million annually by 2013, mostly from reduction in back-office areas and other effects.

Hewitt has some 3,000 clients, and 49% of Aon Hewitt's operation by revenue would be from consulting. Another 40% would be benefits outsourcing.

In April, Aon said its first-quarter earnings dropped 36% after $126 million in year-earlier tax gains, though its adjusted earnings rose and topped analysts' forecasts. Meanwhile, Hewitt in May said its fiscal second-quarter earnings fell 15% because of charges and year-earlier gains as revenue increased and adjusted results rose.