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Thursday, February 21, 2008 3:38 PM ET
An easy choice for Reed Elsevier
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ChoicePoint Inc. (CPS-US)Alpharetta, Georgia
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Last Updated: 7/15/2019
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PR: Reed Elsevier to Acquire ChoicePoint for $4.1 billion 2/21/2008
PR: Blue Harbour Group Comments on Choicepoint Acquisition 2/21/2008

Reed Elsevier Group plc's move to acquire Alpharetta, Ga.-based health care data company ChoicePoint Inc. for about $4 billion, or $50 per share, was met with investor approval Feb. 21, as both companies' stocks rose following the announcement.

The London-based acquirer said that adding the biggest U.S. provider of information services for the insurance industry into its LexisNexis database will create a risk management business with $1.5 billion in sales. ChoicePoint will be combined with the LexisNexis Risk Information and Analytics Group.

"It seems like a pretty high price they paid when you look at EBITDA, but the dollar is weak and the pound strong, so from that perspective, it's not as much," Brian Ruttenbur, an analyst with Morgan Keegan & Co. Inc. told SNL, adding, "It makes sense that they're trying to put a bunch of database companies together."

ChoicePoint's products include a system to calculate the risk of losses on commercial insurance, software to track claims and an automated claims-application process. It also searches court documents and performs background checks on job applicants and potential volunteers for nonprofit groups.

ChoicePoint was spun off in 1997 from Equifax Inc., a consumer-credit reporting company in Atlanta.

Speaking on a Feb. 21 conference call, Reed Elsevier's CEO Crispin Davis said the acquisition would help bolster online business and increase profitability. "It will create the leadership position in the very-attractive, high-growth risk analytics sector." he said.

"We want to accelerate growth further from the current levels, we want to deliver a more consistent growth rate," he said, noting that the sale of the company's education business and the planned divestiture of its business information unit were also part of the strategy. He said the company's current focus is on a "more integrated synergistic and cohesive" operating model.

Investors, including Greenwich, Conn.-based Blue Harbour Group LP, a private equity firm that owns about 4.6 million shares, or 6.5%, of ChoicePoint stock, applauded the merger. "Blue Harbour has been supportive of ChoicePoint management's commitment to create and unlock value," CEO Clifton Robbins said in a Feb. 21 statement. "This transaction announced today recognizes that ChoicePoint is an excellent company with strategic assets, strong cash flows and growth prospects. We applaud ChoicePoint's board on today's very positive development for shareholders."

ChoicePoint's stock jumped 43.32% to $48.24 as of 3:00 p.m. ET on Feb. 21. Shares of Reed Elsevier, which trade on the London Stock Exchange, were up 7.45% to £627.50 as of market close.

"There really aren't many more deals like this," Ruttenbur said with regard to future M&A activity in the space. The only other large company in the background-checking and risk mitigation space is First Advantage Corp., he said, "and they're trading at a huge discount to everyone else out there."

First Advantage, which said Jan. 15 that it would spin off its financial services segment, has about 40% of its capital tied up in mortgage and property information assets, according to Ruttenbur. The stock was up 8.90% to $30.93 per share on 2x average volume in afternoon trading.

Other data and risk analytics providers also saw their stocks jump, with Interactive Data Corp. up 4.67% to $30.04 per share and MSCI Inc. up 3.73% to $33.41.

Some smaller companies saw larger gains, with Goldleaf Financial Solutions Inc. and Healthaxis Inc. up 12.68% to $2.40 per share and 11.91% to 93 cents per share, respectively. ACI Worldwide Inc. was up 7.61% to $16.69.

"When you take somebody out in this market with cash at a 50% premium, what investor wouldn't like that?" Ruttenbur told SNL. In a Feb. 21 report, Ruttenbur said he would suspend his "market perform" rating on ChoicePoint in light of the merger announcement.

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Article updated at 11:17 a.m. ET to include chart on recent financial technology deals. Jud Harmon contributed to this article.
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