Aon secures $1.5 billion bridge for Hewitt Associates merger, plans to issue unsecured notes

By Jennifer Lanning Drey

Portland, Ore., July 12 - Aon Corp. has secured commitments for a $1.5 billion bridge loan to help facilitate its planned merger with Hewitt Associates, Inc., but the company expects to issue unsecured notes prior to drawing on the bridge facility, Christa Davies, chief financial officer of Aon, said during a company conference call held Monday.

Aon and Hewitt have agreed to a transaction under which Hewitt will merge with a subsidiary of Aon, according to an Aon news release.

The aggregate fully diluted equity value of the transaction is $4.9 billion, which Aon will finance with 50% cash and 50% stock.

Financing commitments from Credit Suisse and Morgan Stanley for the full $2.45 billion of cash consideration are already in place. The commitments include the $1.5 billion bridge facility, as well as a $1.0 billion bank term loan.

The company does not plan to draw on the bridge facility, Davies said.

"We believe we have very strong ability to get the note program in place prior to drawing down the bridge facility," she said.

The facility is a 12-month bridge, the CFO noted.

The $1.0 billion term loan has a three-year term, with 10% maturing in the first year, 10% maturing in the second year and the remainder maturing in the third year, she said.

All of the financing is expected to be completed in the United States.

Davies also said during the call that the company structured the financing of the transaction in accordance with its desire to maintain its investment-grade ratings.

The merger is expected to close by mid-November, subject to customary closing conditions, regulatory approvals and approval by both Aon and Hewitt stockholders.

Significant cash flow

Following the closing of the transaction, Aon will integrate Hewitt with its existing consulting and outsourcing operations and operate the segment globally under the newly created Aon Hewitt brand.

The transaction is expected to be significantly accretive to cash earnings in 2011, Greg Case, Aon's chief executive officer, said during the call.

Additionally, it will increase flexibility with regard to where the cash flow comes from, he said.

"There's a high mix of recurring revenue in this business and very complimentary product portfolios, which drives much greater cash flow stability and growth in future years," Davies later added.

Other benefits of the transaction include an expected $355 million in annual cost savings across Aon Hewitt in 2013, Case said.

"Aon Hewitt, as it comes together, absolutely strengthens the leadership for Aon overall. Upon the completion of the merger, Aon will be the global leader in risk and human capital solutions," Case said.

Chicago-based Aon and its subsidiaries are focused on risk and insurance brokerage services, consulting and insurance underwriting.

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