Aon makes $1.6 billion offer for Benfield

LONDON (Reuters) - Aon Corp AOC.N, the world's largest insurance broker, has made a recommended cash offer for Benfield BFD.L valuing the UK-listed broker at 844 million pounds ($1.6 billion).

The two sides said on Friday that the acquisition price of 350 pence per share in the reinsurance broker represents a premium of over 29 percent to the closing price on Thursday.

Shares in Benfield, whose specialty areas range from arranging cover for earthquakes and hurricanes to kidnap and ransom, were up nearly 30 percent in early trade on Friday, changing hands at 352.3p at 0828 GMT.

Aon said the deal, agreed unanimously by both boards, would lead to Benfield being integrated into Aon's existing reinsurance operations, Aon Re Global.

The two sides expect the deal to add to Aon's presence in developing market in Asia and Latin America, its analytical capability, and boosts Aon's standing in the U.S. Florida and South East property-catastrophe markets.

The deal is expected to generate 65 million pounds in savings in 2011, largely from shared administration.

Aon said it would fund the deal through cash on hand and expects it to close by the end of the year.

LONG-TIME TAKEOVER TARGET

Benfield, the world's third largest reinsurance broker and the last major independently-owned franchise, has long been a takeover target for larger rivals Aon, Marsh & McLennan Cos Inc (MMC.N) and Willis Group Holdings Ltd (WSH.N).

The insurance and reinsurance broking sectors have seen a burst of consolidation recently as global reach and an increasing investment in sophisticated risk analysis models has meant smaller brokers struggle to win or retain clients.

Aon acquired in February the reinsurance operations of rival Arthur J Gallagher (AJG.N) for an upfront payment of $30 million.

Benfield has rebuffed previous takeover approaches but in the past 18 months has seen profits slip as a result of the weak dollar, spiraling costs and falling reinsurance prices, which has hit its fee revenue, and caused its shares to fall by a quarter since the start of 2007.

Grahame Chilton, Benfield's CEO, who had previously said suitors had "champagne tastes and beer money", said the offer was fair in tough market conditions.

"This is fair value for both parties... (the offer) will be recognized as good value to Benfield shareholders," said Chilton, who will become vice chairman of Aon Group.

Analysts said Aon's offer, which is the equivalent of 2.6 times Benfield's revenue, was fair. "The price is decent. It's game, set and match as far as I'm concerned," said one analyst.

Credit Suisse acted as financial adviser to Aon, while Merrill Lynch advised Benfield.

(Reporting by Clara Ferreira-Marques; Editing by Mike Elliott, Paul Bolding)