The world’s largest insurance broker, Aon Corp. (AON), announced today the acquisition of Hewitt Associates (HEW), the leading provider of human resources outsourcing and consulting, in a cash and stock deal valued at $4.9 billion. The transaction is currently expected to close by mid-November.
Aon’s take-out price works out to $50 a share, a 41% premium to Hewitt’s closing price on Friday. Half of the deal’s $4.9 billion value will be paid in cash and the balance in Aon stock. Aon expects to meet the cash needs through a $1.5 billion bridge facility and $1 billion bank term loan.
Aon is a global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting and specialty insurance underwriting. Aon operates in three major segments: commercial brokerage, consulting services and consumer insurance underwriting.
Upon completion, Hewitt will be integrated into Aon’s consulting services segment. The segment, which specializes in employee benefits administration, will now operate globally as the Aon Hewitt segment.
The combined unit broadens the customer base by adding Hewitt’s large corporate client base to Aon’s predominantly middle-market client base. Moreover, the deal will help Aon secure a strong position in the human resource and benefits outsourcing space. Aon expects the acquisition to significantly add to its 2011 cash earnings and to its GAAP EPS in 2012. The combined entity also expects to trim down back office facilities, thereby generating nearly $355 million in cost synergies by 2013.
For Hewitt shareholders, the deal is a windfall, since they will be able to earn a huge premium on their investment in Hewitt shares. Moreover, Hewitt did not have a policy of paying dividends, although it did have a share repurchase program in place.
Hewitt has not been doing very well lately, as the company was severely impacted by the recession. This is the reason for our current short-term Sell rating (Zacks #4 Rank) on the stock. However, shares opened 32.7% higher this morning, and we expect them to continue rising to the $50 range (the price to be paid by Aon).
The Aon-Hewitt deal is another sign of consolidation activity in the consulting space. Recent chatter about merger talks between privately-held A.T. Kearney and Booz & Company, later reportedly called off, point in that direction. There have also been reports lately that consulting major Deloitte has been on the lookout for acquisition targets.
Read the full analyst report on “AON”
Read the full analyst report on “HEW”
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