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July 13, 2010
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Chicago, IL – July 13, 2010 – Zacks.com Analyst Blog features: Aon Corp. (AON), Hewitt Associates (HEW), The McGraw-Hill Companies Inc. (MHP), ACE Ltd. (ACE) and Millipore Inc. (MIL).
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Here are highlights from Monday’s Analyst Blog:
Aon Acquires Hewitt
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.
ACE Regains Place in S&P 500
Last week, Standard and Poor’s, a subsidiary of The The McGraw-Hill Companies Inc. (MHP), announced that it is substituting reinsurance giant ACE Ltd. (ACE) with health care company Millipore Inc. (MIL) in its S&P 500 index.
ACE will be placed on the index after the close of markets on July 14 after Millipore gets acquired by the German drug and chemical maker Merck KGaA.
With this announcement, ACE regains its lost place in the S&P 500 index. It was dropped from the index a couple of years ago on having changed its place of incorporation to Zurich, Switzerland from the Bermuda . S&P has certain rules on the place of incorporation of its member companies, which if not complied with gets dropped from the index.
S&P 500 primarily houses U.S. based companies though it has a handful of companies with foreign domicile as well. But any new companies being added to the index are U.S. based. S&P revised its definition of U.S. based companies in May 2010. According to the revision a company will be called a U. S. company if it files annual reports and isn’t considered a foreign entity by the Securities and Exchange Commission (SEC); has more fixed assets and sales in the U.S. than anywhere else; the shares are listed with NYSE Euronext and NASAQ OMX Group Inc in the U.S.; and corporate governance is consistent with American practices.
Meeting all these criteria ACE got approved for the inclusion last month. Also, more than a 100 companies also got similar approval. But these companies were kept as a buffer, only to be added on a need basis (when a certain company would get dropped due to mergers or any other corporate events).
ACE shares rose 4.9%, to $54.80 within minutes of the S&P announcement in the after-market trading. Normally, with the shares of the company being added to the index experience such a movement as the investors put their money in the S&P 500 stocks to track the index. S&P 500 is one of the largest and most successful and widely followed funds in the world.
The S&P 500 index includes companies on the basis of their free float capital (free-float is the proportion of an issuers share capital that is available for purchase in the equity markets by investors). The index is considered as bellwether for the U.S. economy. In order to keep intact its comparability across time, the index makes changes to its member companies to take in to account different corporate events such as stock splits, shares issuance, dividends and mergers or acquisitions.
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