Feb. 21 (Bloomberg) -- Reed Elsevier Plc agreed to buy ChoicePoint Inc. for $3.5 billion, adding the biggest U.S. provider of information services for the insurance industry to its LexisNexis database.

Reed Elsevier will pay $50 a share in cash, 49 percent more than ChoicePoint's closing price yesterday. The London-based company also will sell a unit that publishes 135 trade magazines including Variety, the bible of the U.S. entertainment industry.

Combining Alpharetta, Georgia-based ChoicePoint with the LexisNexis Risk Information and Analytics Group will create a risk-management business with $1.5 billion in sales, Reed Elsevier said today. The U.K. company also said 2007 net income rose to 1.2 billion pounds ($2.35 billion) from 623 million pounds a year earlier. Reed Elsevier had the biggest gain in three years in London trading.

``The acquisition fits well into Reed's strategy to expand the fast-growing data and analytics business,'' Paul Richards, a London-based analyst at Numis Securities, said in a phone interview.

ChoicePoint's products include a system to estimate the risk of loss on commercial insurance, software to track claims, and an automated claims-application process. The company also searches legal documents at courthouses, screens prospective employees for corporations and does background checks on potential volunteers for charitable groups. ChoicePoint was spun off in 1997 from Equifax Inc., a consumer-credit reporting company in Atlanta.

`Fast-Growing Market'

In 2006, ChoicePoint agreed to pay a record $15 million to settle U.S. Federal Trade Commission charges the company mishandled records and violated consumers' privacy rights.

``The insurance data business is a very attractive and fast- growing market segment,'' Reed Elsevier Chief Executive Officer Crispin Davis told reporters on a conference call today. ``ChoicePoint will help us to bolster our online business and increase profitability.'' ChoicePoint's sales grew by at least 10 percent every year in the last 10 years, he said. Reed Elsevier will assume about $600 million of debt in the purchase.

Reed Elsevier shares rose 43.5 pence, or 7.5 percent, to 627.5 pence in London, the biggest advance since Feb. 17, 2005. ChoicePoint soared $14.61, or 43 percent, to $48.27 in New York as of 4:18 p.m. local time.

The bid values ChoicePoint at 27 times estimated 2008 profit versus 17.7 for the average commercial-services company in the Standard & Poor's MidCap 400 Index, according to Bloomberg data.

``We believe this to be a sensible move -- with a shift from cyclical, print-driven business to a more resilient, workflow- focused business,'' Paul Sullivan, a Merrill Lynch & Co. analyst who has a ``buy'' rating on Reed Elsevier, wrote in a note today.

Sales Drop

Sales at Reed Elsevier dropped to 4.58 billion pounds in 2007 from 5.4 billion pounds a year earlier after the company sold its education division. Adjusted profit rose to 35.9 pence a share from 33.6 pence a year earlier, beating the median estimate of seven analysts surveyed by Bloomberg News for 35.1 pence.

The ChoicePoint purchase will accelerate revenue and profit growth, Reed said. The deal will add to adjusted earnings starting in the first year and deliver an after-tax return on capital topping the cost of capital by the third year, ``with returns continuing to climb thereafter,'' the company said.

Reed Elsevier, which publishes magazines, stages exhibitions and provides professional information, has expanded its online products and reduced editorial and purchasing costs.

Cost Savings

The company said today it will begin a new cost-cutting plan to save 245 million pounds from 2008 to 2011. Annual savings will reach 100 million pounds by 2011, and the plan will lead to ``exceptional costs'' of 140 million pounds, the company said.

ChoicePoint, which has 5,500 employees, had net income of $32.4 million in 2007 on sales of $981.9 million.

The combination will generate cost savings of more than $150 million by the third year after completion, Reed said. Costs related to the integration are forecast to be about $200 million.

The transaction will initially be financed through new bank facilities, and later refinanced through the sale of debt, Reed said.

Reed Elsevier said it will sell Reed Business Information, which publishes Variety, Publishers Weekly, New Scientist and Australian Doctor. The unit depends on advertising revenue and tracks the ups and downs of the economy, while the company is trying to move to more subscription-based businesses, Reed said.

Reed Business Information had revenue of 906 million pounds last year, representing 20 percent of total sales. The company will keep the exhibition unit, the other part of the Reed Business division.

No Talks

Reed Elsevier isn't in talks with potential buyers for Reed Business Information, Davis told reporters on a conference call today. The sale may take ``some time'' because of the turmoil in the credit markets, he said. Davis said he doesn't have a particular buyer in mind and predicted a ``strong level of interest'' for the business from competitors and buyout firms.

The sale may fetch about 1 billion pounds and likely bidders will be United Business Media Plc, the U.K. publisher of Information Week, and private-equity firms, Numis's Richards said. UBM spokeswoman Fiona Mulcahy declined to comment.

Johnathan Barrett, an analyst at Kaupthing Singer & Friedlander in London, predicted in a note that Apax Partners Worldwide LLP, Cinven Ltd. and other buyout firms will consider buying Reed Business Information. Publishers such as Trinity Mirror Plc, Johnston Press Plc and Daily Mail and General Trust Plc may look at Totaljobs.com, a U.K. recruitment Web site owned by Reed Business Information he said.

To contact the reporter on this story: Simon Thiel in London at sthiel1@bloomberg.net

Last Updated: February 21, 2008 16:25 EST