BREAKING NEWS: Hewitt Associates, Inc. to Merge with Aon Corporation

July 12, 2010 (PLANSPONSOR.com) – 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.