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CHICAGO-After months of intense speculation over its future, Minet Group will become part of Aon Group Inc. and not J&H Marsh & McLennan Inc.

Aon Corp. and The St. Paul Cos. Inc. on Friday announced they have entered into a definitive purchase agreement in which Aon will acquire all of Minet's operations.

Terms of the Aon/Minet deal, which were described as "not deemed to be material to either party" were not disclosed. London sources say Aon will pay $50 million to $100 million for the London-based broker, which would represent 20% to 40% of Minet's estimated 1996 revenues of $250 million.

The transaction is expected to close within the next several weeks, subject to regulatory approval.

In January, St. Paul and then Marsh & McLennan Cos. Inc. confirmed they were in negotiations for M&M to buy Minet (BI, Jan. 27).

"We had not formally ceased negotiations with M&M," a spokeswoman for St. Paul said. "Within the last several weeks, Aon approached us; it was unsolicited."

Speculation in London and the U.S. insurance markets is that Marsh's interest in Minet had diminished a bit following its $1.8 billion acquisition of Johnson & Higgins last month (BI, March 31), which left the door open to another bidder.

A spokeswoman for J&H Marsh & McLennan said that the reason thedeal fell through had nothing to do with the J&H acquisition.

"Frankly, we just couldn't agree on financial terms that were satisfactory to us and to St. Paul," she said.

A broad indemnification agreement is part of the deal between Aon and St. Paul, under which St. Paul will indemnify Aon for any pre-closing liabilities that arise from Minet.

St. Paul is adequately reserved for any of those losses, the insurer's spokeswoman added.

Also, as in Aon's 1992 deal with Reliance Corp. for the purchase of Frank B. Hall & Co. Inc.,"there will be some enhanced opportunities as a result of the transaction" between Aon and St. Paul, confirmed Michael D. O'Halleran, president of Aon Group.

As part of the Frank B. Hall purchase, Reliance agreed to place reinsurance through Aon's reinsurance brokerage units that would generate a minimum of $18 million in commissions a year for 15 years.

The purchase price for Minet was not disclosed because "it's a very complicated transaction," said Patrick G. Ryan, chairman and chief executive officer of Aon Group.

"We feel Minet is a very fine strategic fit for Aon," he said. "When it was put on the market (last September), we had our plans in other directions and didn't want to take on too much concurrently. After we bought A&A, we found A&A had been in serious discussions with Minet and it would be a clear strategic fit" for Aon.

Mr. O'Halleran added: "We felt Minet's discussion with Marsh had slowed down. We felt there was an opportunity and we jumped on it.

"At Aon, we don't let the grass grow under our feet."

From Minet's point of view, Aon's announcement has ended a difficult period of uncertainty since St. Paul placed it on the block last year.

"We are delighted to have something resolved," said Minet Chairman Peter Christie, who added he had been kept informed of the negotiations by St. Paul.

Over the past few months, the sword hanging over Minet's head prompted several teams of brokers to leave for other companies, though Mr. Christie said staffing levels now are not materially different from a year ago. Any staff movements have been through "natural attrition," he said.

Minet's workforce totaled 3,715 employees in 1995, and Aon's roster has reached 29,449 since acquiring A&A and Bain Hogg.

Minet also has maintained flagship accounts, including the "Big Six" accounting firms, for which it places professional liability coverage.

However, Minet has been struggling to turn a profit in the last several years. Minet posted a pretax loss for the fiscal year ended Sept. 30, 1995, of $13 million, a 30% increase from fiscal 1994's $10 million loss. This follows a pretax loss of $13 million in fiscal 1993 and a disastrous $433 million pretax loss in fiscal 1992.

Minet clients were informed once the deal had taken place and were "generally very supportive" and pleased to see the matter settled, Mr. Christie said.

He is expected to take on a senior role within Aon, Mr. O'Halleran said.

Aon is acquiring all of Minet's operations worldwide.

In contrast, the proposed deal between M&M and Minet would have excluded wholesale broker Swett & Crawford Group and Australian reinsurance broker Minet Burn Roche.

Minet's professional liability business and wholesale broker Swett & Crawford Group, "will be a great fit," Mr. O'Halleran said.

In addition, Minet specialties in technology and financial institutions are businesses "that under the Aon ownership will become very accretive," he said.

Indeed, the addition of Swett & Crawford will create a new behemoth in the insurance wholesale business.

The combined 1995 volume of premiums placed by Swett & Crawford, Alexander Howden North America and Aon's Sherwood Insurance Services unit totals more than $1.3 billion (BI, Sept. 16, 1996). The next largest wholesaler is Sedgwick's Price Forbes North America which reported $520 million in 1995 premium volume.

The addition of Minet Re to the recently combined Alexander Reinsurance Intermediaries Inc. and Aon Re Worldwide Inc. creates the world's largest reinsurance broker, based on 1995 revenues. The combined $479.5 million in 1995 revenue generated by Aon's three reinsurance brokers edges ahead of M&M's Guy Carpenter & Co. Inc. and J&H's Willcox Inc. Reinsurance Intermediaries, which together would have reported $400.9 million in 1995 gross revenues on a pro forma basis (BI, Oct. 14, 1996).

Overall, the combined pro forma gross revenues of Aon Group with Minet are estimated at $3.85 billion.

This is still more than $1.5 billion shy of the recently combined revenues of J&H and Marsh & McLennan Cos.

J&H Marsh & McLennan will remain the world's largest retail broker, with combined retail revenues of about $2.4 billion. The addition of Minet raises Aon's retail brokerage revenues to an estimated $2.0 billion.

Not only will Aon increase its wholesale, reinsurance and specialty business, but the Minet acquisition also enhances its London operations.

"Minet is a vital addition to an already substantial Aon London presence," said Mark Lefenfeld, a managing director with Russell Miller Inc. in Austin, Texas. "This makes Aon considerably more competitive in London."

Aon's merger of its Bain Hogg and A&A acquisitions, as well as its purchase of what is now called Nicholson Jenner Leslie Ltd. in London, is continuing. The London operations have been split into Aon Group Ltd., headed by Alan Colls, and Aon Risk Services, led by Geoff Whitehead.

Aon Group Ltd. includes the Alexander Howden Group Ltd., Nicholson Jenner Leslie Ltd. and Bain Hogg International Ltd. operations, and on a day-to-day level will be run by an executive committee chaired by Dennis Mahoney. For the time being, though, Aon continues to place business at Lloyd's of London using the licenses of its acquired brokers.

In general, analysts view the deal as a good strategic fit for Aon.

"Minet really looks more like an Aon deal than a Marsh deal," commented Timothy J. Cunningham, a principal with Insight Management Consulting Group, a Westchester, Ill.-based brokerage consulting firm.

Minet fits better with Aon's global expansion strategy as well as its strategy to build its niche program and wholesale business, he said.

It also maintains Aon's competitive position in light of the recent M&M and J&H deal, said Mr. Lefenfeld of Russell Miller. "There seems to be some leap-frogging taking place in the overall consolidation."

The challenge now, especially for Aon and M&M, is to convert the accumulated volume to enhance one's competitiveness, Mr. Lefenfeld said. "At the end of the day, the one who integrates best is the winner."

Some risk managers, however, say they may start using independent regional brokers more as the number of large international brokers dwindles.

While a merged company theoretically could provide a wider number of account executives to choose from, it is more likely the merged entity will cut costs and reduce the choice of account executives available from the separate entities, said John F. Riley, director of corporate risk management at Dun & Bradstreet Corp. in New York. "They are looking to reduce costs and most of the costs are in salaries," he said.

Dun & Bradstreet currently uses M&M and Aon, as a result of Aon's acquisition of A&A.

But, Mr. Riley said, if he wanted to change he now has a very limited choice of large brokers to choose from.

"The limited choice could force you to look closer at second-tier brokers," he said. "Maybe they will lack the international expertise, but for most of what we do that is not essential."

Independent regional brokers could see more business as a result of the mergers, agreed David Adler, risk manager at Portman Holdings L.L.P., a real estate company in Atlanta.

"Risk managers who are looking for options will be forced to look at the regional independents and they may be pleasantly surprised at the level of talent they find," he said.

Portman uses Aon, as a result of its purchase of A&A, and Atlanta-based Hamilton-Dorsey-Alston, Mr. Adler said.

Sarah Goddard and Gavin Souter contributed to this report