Hewitt Associates, Inc. to Merge with Aon Corporation

Two giants in the benefit consulting space have decided to join forces. 


This morning Aon Corporation and Hewitt Associates, Inc. announced that the boards of directors of both companies have approved a definitive agreement under which Hewitt will merge with a subsidiary of Aon. 

Following the close of the transaction, Aon intends to integrate Hewitt with its existing consulting and outsourcing operations (Aon Consulting) and operate the segment globally under a newly created Aon Hewitt brand.  Russ Fradin, chairman and chief executive officer of Hewitt, will serve as chairman and chief executive officer of Aon Hewitt, reporting to Greg Case, chief executive officer, Aon Corporation.   

According to the announcement, the combination offers: 

  • Aon Hewitt revenues of $4.3 billion and 29,000 associates globally.  Combined revenues for fiscal year 2009 consist of 49% from consulting services, 40% from benefits outsourcing and 11% from HR business process outsourcing. 
  • Complementary product and service portfolio across consulting, benefits outsourcing and HR business process outsourcing.  The firms note that the expanded product portfolio will provide for “significant cross-sell opportunities”, including the marketing of Hewitt’s benefits outsourcing and HR business process outsourcing services to Aon’s clients, as well as the marketing of Aon’s risk services product portfolio to Hewitt’s clients; 
  • The combined client base will provide significant cross-sell opportunities to leverage Hewitt’s predominantly large corporate client base with Aon’s predominantly middle market client base;  
  • The transaction is expected to generate approximately $355 million in annual cost savings across Aon Hewitt in 2013, primarily from reduction in back-office areas, public company costs, management overlap and leverage of technology platforms. 

Additionally, the firms say they expect Aon Hewitt will deliver improved operational performance and a long-term operating margin of 20%, primarily through “anticipated synergies and greater economies of scale.”  The announcement notes that the “strong cash flow generation of Hewitt, combined with anticipated synergies from the combination”, are expected to deliver $1.5 billion of value creation for stockholders on a discounted cash flow basis, after subtracting the purchase price of the transaction. 


Transaction Value 

 The aggregate consideration is valued at $50 per Hewitt share, which represents a 41% premium to Hewitt's closing stock price on July 9, 2010, the last trading day prior to the announcement.  The aggregate fully diluted equity value of the transaction is approximately $4.9 billion, consisting of 50% cash and 50% Aon stock (based on the closing price of Aon common stock on July 9, 2010). 

"This agreement reflects our ongoing efforts to ensure that Aon's associates, capabilities and technology remain at the forefront of our industry, providing distinctive client value," said Case.  "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." 

"We are extremely excited to join forces with another iconic global brand to form the leading human capital services enterprise," commented Fradin. "This combination allows us to provide even more services for our clients and greater opportunities for our associates.  Aon and Hewitt share a relentless commitment to our clients and to the associates who serve them." 

An integration team led by Greg Besio (chief administrative officer, Aon) will commence planning for the transition.  The team is comprised of leaders across Aon and Hewitt and includes: Kristi Savacool (senior vice president, Hewitt Large Markets Benefits Outsourcing), Jim Konieczny (president, Hewitt HR Business Process Outsourcing), Yvan Legris (president, Hewitt Consulting) and Kathryn Hayley (co-chief executive officer, Aon Consulting). 


Transaction Summary 

Hewitt will merge with a subsidiary of Aon.  Hewitt stockholders will be entitled to receive for each share of Hewitt common stock, $25.61 in cash and 0.6362 of a share of Aon common stock.  Based on the closing price of Aon common stock on July 9, 2010, the aggregate consideration paid on a fully diluted basis is valued at $50 per Hewitt share.  The definitive agreement also contains an election procedure allowing each Hewitt stockholder to seek all cash or all stock, subject to proration and adjustment.   

The aggregate fully diluted equity value of the transaction is approximately $4.9 billion, consisting of $2.45 billion of cash and the issuance of 64.0 million shares, including the rollover of certain Hewitt options into options to purchase Aon stock.  The consideration reflects a multiple of approximately 7.5 times Hewitt's fiscal year 2010 consensus estimates EBITDA. 

Financing commitments from Credit Suisse and Morgan Stanley for 100% of the cash consideration are in place for a three-year $1.0 billion bank term loan and a $1.5 billion bridge loan facility.  Aon expects to issue unsecured notes prior to drawing on the bridge loan facility. 

The transaction is expected to close by mid-November, subject to customary closing conditions, regulatory approvals, as well as approval by both Aon and Hewitt stockholders.