Benfield buries the hatchet with Aon after agreeing £844m sale

Click to follow

The chairman and the chief executive of Benfield will share a £126m payday after agreeing to sell the reinsurance broker to the US insurance giant Aon for £844m.

Benfield recommended Aon's 350p-a-share cash offer to shareholders yesterday. The deal values Benfield at a 29 per cent premium to Thursday's closing share price.

John Coldman, Benfield's chairman, and Grahame Chilton, the chief executive, own 17.1 per cent of the company between them. The deal values Mr Coldman's 6.7 per cent stake at £49m, while Mr Chilton will reap £77m from his 10.4 per cent stake. Mike Rees, a former director who helped found the business in 1973, will get £53m for his 7.1 per cent holding. The insurer's three other executive directors own about 1 per cent of the shares between them. The directors and Mr Rees all gave irrevocable undertakings to sell their shares to Aon.

Mr Coldman, Mr Chilton and Matthew Harding, the late vice-chairman of Chelsea Football Club, led a management buy-out of the broker in 1988. After a number of acquisitions, the company was listed on the London Stock Exchange in 2003 at 250p a share. Mr Harding was killed in a helicopter crash in 1996.

Mr Chilton had previously dismissed suitors, which included Aon, as having "champagne tastes and beer money". But Benfield succumbed to its rival's offer after the weak dollar, rising costs and falling reinsurance prices hit profits, sending its shares down by a quarter since the start of last year.

The deal sees Benfield and Aon burying the hatchet after settling a legal dispute last year. Aon, which hired 20 people from Benfield in late 2006 to expand its London-based reinsurance business, agreed to pay £9.5m to compensate Benfield for the resulting loss of profit.

Shares in Benfield, which arranges cover for events such as earthquakes, hurricanes, kidnapping and ransom, rose 27.5 per cent, or 74.5p, to 345.5p. Analysts said a rival bid was unlikely to trump Aon's offer because the price was fair and it had the backing of the Benfield board. Mr Chilton said: "The Benfield board believes that the offer provides Benfield's shareholders with fair and certain value."

Benfield will pay Aon a break fee of £8.4m, 1 per cent of the deal's value, if the board withdraws its recommendation or a rival offer succeeds. Aon will take on £91m of Benfield's debt, giving the deal an enterprise value of £935m. Benfield will also pay a dividend of 4p a share next month.

London-based Benfield has more than 45 offices across the US, the UK, Europe, Asia and Bermuda, where it is incorporated.

The companies said the deal would boost Aon's presence in Asian and Latin American developing markets and increase its business in the property-catastrophe market in Florida and south-east United States. Aon will also get its hands on Benfield's leading technology for analytics, modelling and client services.

Mr Chilton will become vice-chairman of Aon, reporting to Greg Case, the Chicago-based company's chief executive. Aon intends to combine Benfield with its existing reinsurance operations and operate the division as Aon Benfield Re.

The combination is expected to produce £65m in annual cost savings by 2011 from combining administrative and support functions. The companies said the transaction was expected to close by the end of the year.