Is a voting machine merger too big to stand?

[March 04, 2010]  WASHINGTON (AP) -- The largest voting machine company in the country bought its biggest competitor six months ago without advance fanfare. Now the Justice Department is investigating whether to unwind the merger that put a privately held Nebraska company in control of the voting machines in nearly 70 percent of the nation's precincts.

Caption: In this Feb. 24, 2010, file photo, Sen. Charles Schumer, D-N.Y., speaks at a rally on Capitol Hill in Washington. The largest voting machine company in the country bought its biggest competitor six months ago without advance fanfare. Now the Justice Department is investigating whether to unwind the merger that put a privately held Nebraska company in control of the voting machines in nearly 70 percent of the nation's precincts. Schumer, chairman of the Senate Rules Committee, has raised concerns about the purchase, in which Election Systems & Software Inc. of Omaha, Neb., bought the voting machine subsidiary of Diebold Inc. of North Canton, Ohio. (AP file photo by Luis M. Alvarez)

With midterm elections looming and a battle for control of Congress under way, a coalition of election officials from several states and voter advocate groups is pressing the Justice Department to unscramble the combination of two companies. Critics say the merger could cause foul-ups at the polls on Election Day, and some even characterize it as a national security risk.

The emergence of one megaplayer in the electronic voting machine industry may be an unintended consequence of reforms enacted after the presidential election debacle in Florida a decade ago. Few companies can afford to get into the business due to the expense of developing the electronic voting safeguards that reformers insisted on.

Senate Rules Committee Chairman Chuck Schumer, D-N.Y., has raised concerns about the purchase, in which Election Systems & Software Inc. of Omaha, Neb., bought the voting machine subsidiary of Diebold Inc. of North Canton, Ohio.

The Justice Department's antitrust division is doing a post-merger review that could result in the government's trying to persuade ES&S to sell off some of its assets or face a court suit to force a sell-off. An announcement could come soon.

ES&S said it has been cooperating with the division's review. "We are committed to exploring potential resolutions that will address any concerns about this transaction, while ensuring that the election services needs of the jurisdictions we serve will be met," a company statement said.

Separate from Justice's review, competing voting machine firm Hart InterCivic Inc. has sued ES&S, alleging that the company will now supply voting machines in 68.2 percent of the nation's voting precincts. The New York State Board of Elections urged the Justice Department and the New York attorney general to intervene in the lawsuit challenging the acquisition.

Another competitor is in court alleging violation of procurement laws in the award of a $50 million contract to ES&S in recent weeks by New York City's elections board. And elections board commissioners are cooperating with a probe of that contract by the U.S. attorney's office, the board's spokeswoman, Valerie Vazquez, said this week.

As a privately held company, ES&S issues no financial reports. It didn't tell the Justice Department about the Diebold deal because the transaction wasn't big enough to trigger the federal law that requires the government to be informed of big mergers before they are completed.

But the government can always come in after a merger to try to alter any deal it thinks harm competition.

"If you end up with 70 percent of the voting machines and the people rely on them, and if entry into the market is difficult or impossible, it would certainly seem to be a legitimate target for antitrust enforcement," said Charles "Rick" Rule, a longtime Washington attorney who ran the Justice Department's antitrust division from 1986-89 during the merger-friendly Reagan administration.

On Capitol Hill, Schumer's committee has collected information from opponents and a few proponents of the merger and commissioned an analysis by the Congressional Research Service. CRS's conclusion: The merger means ES&S has a presence in 90 percent of the states, is the sole source for at least 20 and has a market share three or more times that of its closest competitor.

"In the voting systems industry, perhaps more than any other, the failure of the market can affect the public interest in a way that goes to the heart of our democracy," Schumer said in a letter urging Attorney General Eric Holder to take a close look at ES&S.

In an industry plagued by equipment malfunctions, wrongly recorded votes and a lack of transparency, the need for increased quality competition -- not less competition -- is essential, John Bonifaz, legal director of the voter advocacy group Voter Action, wrote Schumer.

Election failure on a large scale has the potential to destabilize the nation, so ES&S must divest some of its assets, reduce the scope of election jurisdictions subject to its software and take other steps to offset the increased threat to national security, a coalition of 19 election experts and groups including Common Cause said in a Feb. 12 letter to Justice's antitrust division.

ES&S voting machines counted approximately 50 percent of the votes in the last four major U.S. elections, says the company's Web site, and ES&S boasts "one-stop-shop full-service election coordination from start to finish."

On Wednesday, ES&S defended its performance, saying that since the acquisition last September, the company has supported successful elections in many jurisdictions that previously were customers of the Diebold subsidiary.

Changes enacted by Congress after the Bush v. Gore vote in Florida in 2000 require a certification process for voting machine companies that is so time-consuming and costly it discourages companies from plunging into the business to compete with ES&S, some state and local election officials say.

"I'm surprised and strongly believe the elections community is lucky to still have as many voting equipment vendors in existence as we do today," Iowa Secretary of State Michael Mauro, a Democrat, said in a letter to Schumer.

The secretaries of state in California and Connecticut expressed concern about the merger, as did some local election officials in Florida, California and New Mexico.

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On the Net:

Election Systems & Software Inc.: http://www.essvote.com/

[Associated Press; By PETE YOST]

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