Aon Buying ‘Substantially All’ of Gallagher’s U.S/UK Reinsurance

February 25, 2008

Aon Corporation announced that it has reached an agreement “to acquire substantially all of Gallagher Re’s U.S. and U.K. reinsurance brokerage business. In addition, a team of industry professionals from Gallagher Re, based in the U.S. and U.K., will join Aon Re Global.”

In a companion bulletin Arthur J. Gallagher & Co. said it would “receive initial payments of approximately $30 million in cash and potentially an additional $15 million in cash based on revenues generated in the 12 months following the close of the transactions.”
Gallagher also said that the U.S. part of the deal has already been completed, but noted that the UK part of the transaction is “subject to certain conditions and is expected to be completed on or before April 30, 2008.”

Michael D. O’Halleran, executive chairman of Aon Re Global, expressed his excitement about the deal, especially the addition of “a group of talented reinsurance professionals with distinctive knowledge,” who will be joining “the Aon Re Global team.”

He also noted the deal would result in Aon Re having a “significantly larger presence in the U.S. accident, health and life markets, along with enhanced capabilities in the U.K. specialty, casualty and financial institutions business.

Additionally, Gallagher Re has invested significantly in index-based capital markets solutions, which align well with our integrated capital solutions strategy and which will add to our industry-leading Aon Capital Markets team. We will be able to utilize our scale in accounts, analytics, and services to drive innovation and significantly improve margins over a larger base, delivering immediate impact to our clients.”

Aon Re Global CEO Andrew Appel noted the acquisition further strengthens the division’s “position as the number one reinsurance intermediary and as a premier destination of choice for top talent.”

Even though there’s some moral satisfaction that the business will stay in Chicago and will maintain its Irish connection, it’s not a particularly lucrative deal for Gallagher. The Company said it would treat the sale as “a component of discontinued operations,” starting in the first quarter of 2008. It will “record its best estimate of the sales proceeds and related charges as follows: (in millions) Estimated sales proceeds $38 Non-cash loss on sale (40) Cash loss on sale (20) Net pretax loss on sale $(22).”

Gallagher said it would “adjust its best estimate of the sales proceeds to be received and will also record approximately $15 million in related lease termination costs in the 3rd or 4th quarter 2008 when it winds down those leased facilities.”

Source: Aon –; Gallagher –

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