Aon to buy Hewitt for $4.9 billion

Aon to buy Hewitt for $4.9 billion
Insurance giant adding human resources consultant as health reform phases in
By Bruce Japsen, Tribune reporter
7:51 p.m. CDT, July 12, 2010


Chicago-based Aon Corp. will purchase human resources consulting firm Hewitt Associates of Lincolnshire for $4.9 billion in cash and stock in a move to expand its offerings to global employers navigating the complexities of health care reform and employee financial benefits.
Aon, an insurance brokerage and consulting giant, will figure large in uninsured individuals' and small employers' ability to purchase health insurance once federal government subsidies are available in the next four years. Meanwhile, Hewitt's business focuses on advising Fortune 500 companies in the areas of benefits consulting and outsourcing.

Health reform passed by Congress and signed into law four months ago by President Barack Obama will bring 32 million uninsured Americans medical care coverage. That will mean millions of new customers to insurance companies, as well as give small employers who have not provided health benefits the ability to add or enhance their employee health coverage.

"Aon will be the global leader in risk and human capital solutions," Greg Case, chief executive of Aon, said during a conference call with analysts and investors Monday. "This makes us a leader in human capital solutions."


Hewitt will be run by current Hewitt Chairman and Chief Executive Russ Fradin, who will become CEO of a unit called Aon Hewitt.

"This combination allows us to provide even more services for our clients and greater opportunities for our associates," said Fradin. "It gives us more products to cross-sell."

Fradin said Hewitt had already been looking to bolster its presence in the brokerage area. Hewitt has one of the world's largest businesses advising global employers in the area of health and financial benefits.

The companies expect the deal to begin benefitting Aon earnings next year.

Aon will pay $50 per share for Hewitt. That price is a 41 percent premium over Hewitt's closing price Friday of $35.40 on the New York Stock Exchange. Aon closed at $38.34 on Friday. The companies expect the deal to close by mid-November.

Aon's stock closed down 7.1 percent Monday, at $35.62 a share. It was among the biggest percentage losers on the New York Stock Exchange on Monday.

An Aon spokesman said the companies just announced a leadership integration team, and therefore it's too early to say how many local jobs will be lost. Aon's consulting arm has about 400 Chicago-area workers, and Hewitt has about 4,000.

But Aon did say the transaction is expected to generate $355 million in annual cost savings across Aon Hewitt in 2013, primarily from reduction in back-office areas, public company costs, management overlap and technology platforms. That represents about 10 percent of the combined company's operating expenses, Aon said during a conference call.

Hewitt has more than 4,000 workers on two campuses in Lincolnshire and is the village's biggest publicly traded company, said Village Manager Bob Irvin.

"Hewitt's presence, though less than it was at its height, is significant in terms of the number of employees that are using Lincolnshire businesses and services," Irvin said. "If there's a reduction in employees, that would have an impact, but if they decide to move employees from Aon here, that could be a plus."

At its peak, Hewitt had more than 6,000 workers in Lincolnshire, Irvin said.
The companies have been working on the deal for a "reasonably long period of time," Aon said.

Hewitt's stock closed up 32.2 percent, at $46.79.

Some analysts believe Aon's shares are diluted and see the timing of Hewitt deal as not good.

Despite those worries, Fitch Ratings issued a statement Monday saying Aon's financial outlook is "stable." "Fitch believes that in the long term, Aon's acquisition of Hewitt will result in positive business and operational synergies, with reasonable integration risk," it said.

Tribune reporter Becky Yerak contributed to this report

bjapsen@tribune.com
http://www.chicagotribune.com/business/ct-biz-0713-aon-hewitt-20100712,0,3880339.story