Aon Borrows $2.5B for Hewitt Deal - Analyst Blog

Moving ahead with its latest deal, Aon Corp. (AON) is arranging funds for the acquisition of Hewitt Associates Inc. (HEW) through some credit agreements with a financial syndicate, which are estimated to be worth approximately $2.5 billion. The deal is scheduled to close by mid-November.

Accordingly, Aon borrowed $1 billion by entering into a three-year term credit agreement with Credit Suisse AG (CS) that acted as the administrative agent. In addition, Morgan Stanley Senior Funding Inc. of  Morgan Stanley (MS) acted as the syndication agent, while Bank of America Corp. (BAC), Deutsche Bank Securities Inc. of Deutsche Bank AG (DB) and RBS Securities Inc. of Royal Bank of Scotland Group PI (RBS) were the co-documentation agents for the credit agreement.

In a separate arrangement, Aon raised another $1.5 billion by taking up a senior bridge term loan. The credit agreement was made with Credit Suisse, who acted as the administrative agent for the syndicate, while Morgan Stanley was the syndication agent. Also, Bank of America, Deutsche Bank and RBS acted as the co-documentation agents. Further, Bank of America, Deutsche Bank and RBS were also the co-arrangers for the term loan. Additionally, Credit Suisse and Morgan Stanley also acted as the joint lead arrangers and joint book-runners for the credit agreement.

Aon expects to issue senior notes worth $1.5 billion against the bridge term loan in order to fund the cash component in the Hewitt acquisition.

Last month, Aon, the world's largest insurance brokerage, announced the merger of Hewitt, the leading provider of human resources outsourcing and consulting, with one of Aon’s subsidiaries, Alps Merger Corp.  The deal is valued at $4.9 billion and consists of 50% cash and 50% Aon stock (based on the closing price of Aon as on July 9, 2010).

Earnings Recap

Aon’s second-quarter adjusted operating earnings of 81 cents per share came in modestly ahead of the Zacks Consensus Estimate of 75 cents and the year-earlier result of 76 cents. Despite considerable volatility due to ongoing market challenges and a 21% year-over-year decline in fiduciary investment income; Aon's operating improvement, cost savings and risk management and margin expansion were impressive during the quarter. The Consulting segment’s revenue increased 6% year over year to $317 million, affected by a 2% increase in organic revenue.

Upon completion, Hewitt will be integrated into Aon’s consulting services segment. Aon Consulting will operate the segment globally under the newly created Aon-Hewitt brand. Moreover, the company expects the acquisition to significantly add to its 2011 cash earnings and to its GAAP EPS in 2012. The combined entity also expects to snip some back office facilities, thereby generating nearly $355 million in cost synergies by 2013.

 
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