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Lexis-Nexis Parent To Buy ChoicePoint

$4.1 billion deal would create massive new information brokerage

By Martin H. Bosworth
ConsumerAffairs.com

February 23, 2008

While the deal promises to reap huge corporate windfalls for both companies, the implications for the privacy and safety of Americans' personal information is much less clear.

Reed Elsevier made the announcement in tandem with its plan to sell its Reed Business Information print division, including magazines such as Variety and Publishers Weekly, and focus more on online services and information gathering.

"The combination of ChoicePoint's highly regarded data and analytics assets with LexisNexis's market leading 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," the company said in a statement.

"Since 1997, ChoicePoint has been a leader in our industry," said ChoicePoint Chairman and Chief Executive Officer Derek V. Smith. "We developed innovative products that helped our customers be successful. We created wealth for our shareholders. We built a workplace culture and a respect for personal privacy that is recognized as among the best in our industry and all US-based businesses."

In addition to creating wealth for shareholders, the Reed Elsevier buyout promises to create great wealth for Smith and chief operating officer Derek Curling. Smith would earn $149 million for his shares in ChoicePoint, while Curling would earn $51 million. Details were scarce as to what the combined corporate entity would call itself or if any layoffs would come as a result of the merger.

Privacy advocates expressed concern over the implications of the merger. The Electronic Privacy Information Center (EPIC) said that "Consumer privacy will be seriously affected if the merger is approved without any privacy safeguards." Ed Mierzwinski, head of the U.S. Public Interest Research Group (PIRG), said that the merger represented the latest of "threats to privacy posed by the new relationships between private data vendors collecting commercial data and selling it to government agencies."

"Unless subject to rigorous privacy scrutiny, this union will exacerbate that threat," Mierzwinski said.

The Information Trail

Both companies control a dizzying number of smaller products and divisions designed to investigate personal records for the benefit of insurers, law enforcement, employers, and government agencies.

Lexis-Nexis is the well-known database archive of newspaper, journal, and periodical articles, while ChoicePoint sells services such as its CLUE database of insurance information records to evaluate insurance claims, and the Bridger Insight tool, which helps banks verify identities of new account applicants in compliance with the PATRIOT Act.

And both companies have come under scrutiny in recent years for how easily their treasure troves of data could be compromised.

ChoicePoint became notorious after a ring of Nigerian criminals posed as businessmen and bought the personal records of 163,000 Americans in late 2004. ChoicePoint did not disclose the breach until February 2005, triggering a national outcry over data breaches and information selling, as well as a $15 million settlement with the Federal Trade Commission (FTC) over the breach.

ChoicePoint also paid $500,000 to settle lawsuits brought by the Attorneys General of 44 states over the data breach, and another $10 million to settle a class action lawsuit brought by victims of the breach. Smith and Curling were targets of a Securities & Exchange Commission (SEC) investigation of their sale of stock after the 2004 breach, but were exonerated.

ChoicePoint later underwent a very public makeover, hiring a new privacy officer and "consumer advocate," as well as drastically reforming its practices and agreeing to submit to regular audits of its affairs by federal authorities.

Lexis-Nexis, meanwhile, was hit with a data breach of 32,000 records in March 2005, not long after the ChoicePoint breach was disclosed.

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