Aon Corp. agreed tobuy HewittAssociates, Inc. for $4.9 billion in cash and stock, accordingto an announcement Monday. The merger will integrate Hewitt withAon's existing consulting and outsourcing operations (AonConsulting) and operate the segment globally under the newlycreated Aon Hewitt brand.

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Hewitt helps more than 3,000 clients and their employees aroundthe world anticipate and solve benefits, talent, and relatedfinancial challenges through three primary business lines:consulting, benefits outsourcing and HR business processoutsourcing.

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According to a news release, "Hewitt, combined with AonConsulting, will build upon those strengths, creating a globalleader in human capital solutions, with diverse product and servicecapabilities and world-class associates to effectively serveclients' evolving needs."

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"This agreement reflects our ongoing efforts to ensure thatAon's associates, capabilities and technology remain at theforefront of our industry, providing distinctive client value,"said Greg Case, chief executive officer, Aon Corp. "As we continueto grow our business, this merger will give us a broader portfolioof innovative products and services focused on what we believe aretwo of the most important topics in the global economy today - riskand people."

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According to the announcement, the combination of Aon and Hewittwill result in the following:

  • Aon Hewitt revenues of $4.3 billion and 29,000associates globally. Combined revenues for fiscal year2009 consist of 49 percent from consulting services, 40 percentfrom benefits outsourcing and 11 percent from HR business processoutsourcing, creating more resources for associates and moreopportunities to distinctively serve clients with capabilities ingreater than 120 countries around the world;
  • Leading global brand and client service recognitionworldwide. Premier Hewitt brand will be leveraged alongwith Aon's client recognition for leading employee benefitsconsulting firm;
  • Complementary product and service portfolio acrossconsulting, benefits outsourcing and HR business processoutsourcing. Product portfolio will provide forsignificant cross-sell opportunities including the marketing ofHewitt's benefits outsourcing and HR business process outsourcingservices to Aon's clients, as well as the marketing of Aon'sindustry-leading risk services product portfolio to Hewitt'sclients;
  • Diversified presence across large corporate and middlemarket. The combined client base will provide significantcross-sell opportunities to leverage Hewitt's predominantly largecorporate client base with Aon's predominantly middle market clientbase;
  • Cost savings and operational efficiencies. Thetransaction is expected to generate approximately $355 million inannual cost savings across Aon Hewitt in 2013, primarily fromreduction in back-office areas, public company costs, managementoverlap and leverage of technology platforms;
  • Expect to achieve an operating margin in Aon Hewitt of20 percent. Primarily through anticipated synergies andgreater economies of scale, Aon Hewitt expects to deliver improvedoperational performance and a long-term operating margin of 20percent;
  • Expect to create $1.5 billion of valuecreation. Strong cash flow generation of Hewitt, combinedwith anticipated synergies from the combination, are expected todeliver $1.5 billion of value creation for stockholders on adiscounted cash flow basis, after subtracting the purchase price ofthe transaction.

As Hewitt merges with a subsidiary of Aon, Hewitt stockholderswill 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 onthe closing price of Aon common stock on July 9, 2010, theaggregate consideration paid on a fully diluted basis is valued at$50 per Hewitt share.

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