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ChoicePoint Inc. (CPS) has disclosed the following details of the CFIUS' Exon-Florio review status of its merger with Reed Elsevier as part of its Q2 results announcement:

After being informed by the Department of the Treasury that CFIUS would not be able to complete its review within the review period allotted, the parties withdrew their Notice on May 5, 2008, and re-filed on May 7, 2008. After consultation with the Department of Treasury, the parties again withdrew the Notice on July 18, 2008 and re-filed on July 21, 2008. The review is expected to be completed within 45 days.

The continuing Exon-Florio delays are, of course, no surprise here whatsoever given the very complex security issues this transaction presents. Added to this particular deals potential problems is the fact that the CFIUS's role as an enforcer has very clearly increased as seen very recently in the failed 3Com (COMS)-Bain transaction. It should be pointed out that in that case, the companies attempted only a single re-filing under Exon-Florio, while this deal is now in its second re-filing process. Naturally, this can not be perceived as a positive indication under the circumstances.

It will also be noted that is publication originally did not view this transaction as problematic from a national security perspective, but that perspective very quickly and decisively changed as additional information surfaced. This is somewhat significant as Exon-Florio reviews tend to be, for the most part, black and white proposition from the outset. This transaction's complexity, involving extremely deep-rooted government information handling, puts it in unique category with respect to Exon-Florio. The two re-filings are clearly evidence of this and, again, an indication that serious problems likely exist for this deal.

Last month it was estimated that a fairly high (-20%) chance exists of this deal failing due to the CFIUS investigation. Given that the companies have so far been unable to get through the first stage of the Exon-Florio review, it must again be acknowledged that this deal may not obtain CFIUS clearance due to the complications involving national security matters. Thus, this publication now perceives the chances of failure having increased to about 25%.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

Source: Merger Watch: ChoicePoint - Reed Elsevier