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Reed Elsevier Buys ChoicePoint for $3.6B

HARRY R. WEBER   02/21/08 04:59 PM ET   AP

Reed Elsevier

ATLANTA — ChoicePoint Inc., a 1997 spinoff of credit agency Equifax, is being acquired by the parent of LexisNexis in a cash deal worth $3.6 billion, a major premium for a company that weathered an embarrassing breach of its database, federal investigations and a stock-trading probe of its top two executives.

The deal combines ChoicePoint's data and analytics assets with LexisNexis' technology, a marriage that will strengthen the combined entity's ability to meet growing demand for their services, especially in the insurance field.

The purchase price amounts to $50 a share, a 49 percent premium to Alpharetta, Ga.-based ChoicePoint's closing stock price of $33.66 on Wednesday. ChoicePoint had 71.5 million shares outstanding as of its last reporting date of Oct. 31, 2007.

Reed Elsevier PLC, a London-based educational publisher and parent of the LexisNexis information service, also will assume roughly $500 million to $600 million in ChoicePoint debt, the company said Thursday. Company spokespersons differed on the exact debt figure.

ChoicePoint, which collects, sells access to and analyzes the personal information of consumers, will be combined with LexisNexis' risk group. The combined group will remain based at ChoicePoint's suburban Atlanta headquarters, though a name has yet to be determined.

Personnel decisions, including what role ChoicePoint CEO Derek Smith will play in the group, also have not been determined, said Jim Peck, the chief of LexisNexis' risk group.

There will be staff cuts, though the breadth is not known, Peck said. ChoicePoint employs about 5,000 staff. LexisNexis' risk group has about 1,000.

ChoicePoint shares soared $14.61, more than 43 percent, to close at $48.27 in trading Thursday.

Peck said it was premature to discuss whether any ChoicePoint services will be exited once the deal is completed. He said LexisNexis was particularly interested in ChoicePoint's insurance sector business.

The acquisition, subject to ChoicePoint shareholder and regulatory approval, is expected to close in the summer of 2008.

ChoicePoint did not return repeated calls Thursday seeking comment. One spokesman sent an e-mail referring all inquiries to Reed Elsevier officials.

The acquisition could strengthen Reed Elsevier's shares as a defensive investment during tougher economic times, one analyst said.

"Reed's reputation for being a defensive media stock has received a triple boost today, not only do the results confirm such status, but a considerable sale and acquisition further enhance the view," said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers in London.

"A sale of the more cyclical Business Information division and acquisition of the US data services group ChoicePoint, moves the company further into the arena of more defensive support services."

Reed Elsevier said in a statement that the combination of ChoicePoint's data and analytics assets with LexisNexis' technology can be leveraged to create greater opportunities in "addressing the growing risk information and analytics needs in insurance, financial, legal, screening, law enforcement, public safety, healthcare and other sectors."

ChoicePoint has worked hard to move past its difficulties in recent years.

ChoicePoint disclosed in February 2005 that thieves posing as small business customers gained access to the company's database, possibly compromising the personal information of 163,000 Americans.

In January 2006, the company agreed to pay $15 million to settle Federal Trade Commission charges that the data warehouser's security and record-handling procedures violated consumers' privacy rights.

The company also adopted stronger security measures and launched public education campaigns about identity theft.

Last month, ChoicePoint said the Securities and Exchange Commission closed its investigation into stock sales involving the company's top two executives without recommending any charges.

The SEC was looking into trades by CEO Smith and Chief Operating Officer Doug Curling that netted them $16.6 million in profit after the company first learned about the breach in late September 2004, but before it was publicized.

ChoicePoint's stock price dropped about 10 percent during the week and a half following the February 2005 announcement.

ChoicePoint has said the transactions were prearranged and approved by the company's board.

In 2005, LexisNexis disclosed that hackers got access to personal information of as many as 32,000 U.S. citizens in a database owned by LexisNexis.

Peck said LexisNexis' risk group and ChoicePoint continue to discuss security and will share with each other their best practices.

"Regarding their reputation, I think the best thing you can do and say is look at how they've responded," Peck said. "Once they acknowledged the issue, they responded in a very positive way."

The buyout of ChoicePoint will be a big payday for Smith and Curling. Smith owned 925,531 ChoicePoint shares as of his last transaction, making his shares worth $46.3 million at Reed Elsevier's $50 a share purchase price. Curling owned 138,141 shares as of his last transaction, which would be worth $6.9 million.

Separately, Reed Elsevier said it plans to divest its Reed Business Information unit to reduce its exposure to "advertising markets and cyclicality." The unit includes several publications, including Variety and New Scientist. The company did not provide details on who might buy the unit or how much could be fetched for the unit.

Reed Elsevier also said its total net income almost doubled to $2.3 billion. Sales rose 2 percent to $9 billion.

The company did not break out quarterly earnings.

Shares of Reed Elsevier closed up 7.5 percent at 627.5 pence ($12.21) on the London Stock Exchange.

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AP Business Writer Toby Anderson contributed to this report from London.

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Filed by Michelle Kung  |