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Aon (AON) to Divest Non-Core Operations to Blackstone

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Aon PlcAON recently inked a deal with The Blackstone Group L.P. BX to sell its benefits administration and HR BPO platform to the later for a cash consideration of up to $4.8 billion at closing.

Under this definitive agreement, Blackstone has also agreed to pay Aon an additional amount of up to $500 million in cash based on the future performances. Presently, the deal is subject to customary closing conditions and antitrust clearances. Management expects this transaction to be completed by the second quarter of 2017.

We note that the company regularly divests its non-core operations to enhance its operating strength. During the first half of 2016, the company divested a business each in its Risk and HR Solutions segments that led to a pre-tax gain of $35 million during the first quarter of 2016.

However, the stock has not performed well in the last one year. The shares of Aon have gained only 23% compared with 30% increase for the Zacks categorized Insurance Brokerage industry. In order to boost the shareholders' confidence on the stock, Aon announced that part of the proceeds from this transaction will be used to repurchase shares. The board of directors of Aon has also increased the buyback plan by $5.0 billion, bringing the total amount currently authorized for repurchase to approximately $7.7 billion as of Feb 10, 2017.

Aon already boasts a strong presence in the international insurance brokerage market. Hence, the aforesaid transaction will further bolster its position as a leading global professional services providing firm that entirely focuses on risk, retirement and health. The capital garnered from the sale of its outsourcing platform will facilitate Aon to strengthen its core operations. It will also enable the company to make strategic investments to explore the untapped inorganic growth opportunities.

Aon believes that the free cash flow from operations and transaction proceeds, savings from operating model improvements, and a lower effective tax rate, , if deployed properly, is likely to increase its return on invested capital and eventually result in better adjusted earnings in 2018.

Zacks Rank and Stocks to Consider

Aon presently has Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The company ended the year 2016 with a strong fourth quarter. It delivered positive earnings surprise in three of the last four quarters with an average beat of 1.10%

Some better-ranked stocks from the insurance space include Blue CapitalReinsurance Holdings Ltd. BCRH and James River Group Holdings, Ltd. JRVR . Both of these stocks carry a Zacks Rank #2 (Buy).

Leading insurance broker Blue Capital Reinsurance delivered positive surprises in three of the last four quarters with an average beat of 27.34%

Multi line insurer James River Group delivered positive surprises in last four quarters with an average beat of 3.6%

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The Blackstone Group L.P. (BX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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