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Aon moving headquarters to London

Broker giant cites tax benefits, access to emerging markets

Aon moving headquarters to London

CHICAGO—Aon Corp.'s decision to move its corporate headquarters to London from Chicago will allow it to enhance its ability to engage emerging markets and benefit from favorable tax treatment, according to analysts.

Aon announced the move, which must be approved by shareholders, last week. Aon President and CEO Greg Case said it is another step in the firm's strategic plan to grow Aon as a global platform. In particular, London will help Aon grow its business in emerging markets, he said.

“This is not just about London. It's about accessing the global community and markets around the world,” Mr. Case said.

Many Aon clients in emerging markets are seeking coverage for specialty risks, and the London market provides capacity and expertise in many specialty risk areas, he said.

Mr. Case will maintain a presence in Chicago and London. Up to 20 Aon staff members, including about 50% of the executive committee, will transfer to London as part of the move, including Steve McGill, chairman and CEO of Aon Risk Solutions; Christa Davis, chief financial officer; and Peter Lieb, executive vp and general counsel. Aon already has a substantial operation in London with about 10% of its 60,000-member staff based there. Aon places about 20% of all business placed into the London market, an Aon spokesman said.

Aon said the move will not lead to any staff reductions in Chicago. Rather, it plans to move 750 staffers to Chicago from elsewhere in the United States and plans to add 1,000 U.S. positions.

“We'll be adding jobs across the U.S. as our business continues to grow,” Mr. Case said.

The new staff will be concentrated largely in Aon's HR solutions sector, and the states that will see the largest recruitment will be Florida, Illinois, North Carolina and Texas, Mr. Case said. According to Aon's filing with the U.S. Securities and Exchange Commission on the proposed move, Aon is “working on a special jobs initiative with the city of Chicago.”


Chicago will remain the headquarters for Aon's Americas operations. Its benefits consulting unit, Aon Hewitt, will continue to be based in Lincolnshire, Ill., Mr. Case said.

However, “we want to expand the Aon Hewitt brand globally,” and the corporate headquarters move will help the unit develop its retirement, benefits and human resources consulting business in Europe, he said.

Aon also expects to reap tax benefits from the move.

In the SEC filing, Aon said it expects to “drive significant value to shareholders” under the U.K. territorial tax system in three primary ways. Aon said it expects “greater financial flexibility of future free cash flow.” It also will have access to about $300 million of excess capital held internationally on the balance sheet upon the close of the transaction.

Thirdly, the brokerage expects to increase “future cash flows through a significant reduction in our global effective tax rate, due primarily to changes in the geographical distribution of income,” Aon said in its filing. “A reduction in our global tax rate over the long term, similar to the reduction achieved over the last five years, would allow Aon to remain competitive with certain global competitors.”

According to the Deloitte International Tax Source online database, the maximum U.S. corporate tax rate can reach 39.5%, while the maximum U.K. statutory corporate tax rate is 26% and slated to drop to 25% on April 1. The state of Illinois imposes one of the highest state corporate tax rates at 9.5%, a rate that took effect last year.

Among the moves shareholders must approve is Aon changing its incorporation from Delaware to England. Shareholders would receive one share of the newly formed English public limited company for each share of common stock if they approve the change. Aon U.K. expects to be listed on the New York Stock Exchange.

The transaction is expected to close in the second quarter.

Lloyd's of London welcomed Aon's intended move.

“This is very good news for the London insurance market and for Lloyd's,” Lloyd's Chairman John Nelson said in a statement. “It will help reinforce London's position in the global insurance marketplace.”

Aon is one of several insurance-related companies to change domiciles over the past several years. Its brokerage rival Willis Group Holdings P.L.C. redomesticated from Bermuda to Dublin in 2010, and insurer XL Capital P.L.C. redomesticated from Cayman to Dublin in 2010.


Over the past several years, other international insurers and reinsurers have redomesticated to Switzerland and Bermuda. London, though, is rarely chosen as a redomestication site by large insurance-related firms.

Market analysts said the move makes sense, both for enhancing access to emerging markets and for financial reasons.

“The way I look at is whenever you give a list of reasons for something, the most important reason is the last one,” said Meyer Shields, director at Stifel Nicolaus & Co. in Baltimore. “That's financial flexibility embedded in lower tax rates and capital access.

“The corporate tax rate in the U.K. is lower than it in the U.S.,” he said. “I would emphasize that they're coming from Illinois, which has been less hospitable to corporations.”

“It's an interesting story. This is more about financial flexibility and cash flow,” said James Auden, an analyst with Fitch Ratings Inc. in Chicago. “It makes sense strategically given where their business is. They are a global company, and a large percentage of their revenue comes from overseas.”

“Taxwise, it's got to be good for them,” said Mark Dwelle, an insurance analyst with RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Va. “Illinois just raised their taxes substantially.”

“Strategically, it's something that makes some long-term sense for them,” Mr. Dwelle said. “In the long run for the industry, emerging markets is where the growth will be.”

“Emerging economies have been growing faster than developed economies for some time, and we expect that to continue,” said Bruce Ballentine, an analyst in New York at Moody's Investors Service Inc. “Aon already has a major international presence and seems to be emphasizing access to those markets and further growth in those markets through the proposed move to London.”

“From a financial standpoint or ratings standpoint, we don't think it will change things,” said Fitch's Mr. Auden.

Standard and Poor's Corp.'s rating service issued a bulletin on Friday that said the move would not affect its ratings of Aon.

Aon's shares closed down 39 cents, to $46.28, on Friday amid a generally declining market.