UTC attempts hostile Diebold buy

Offer of $3 billion called ‘opportunistic’ by Diebold board in refusal
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Tuesday, April 1, 2008

HARTFORD, Conn.—Diebold stockholders have a serious proposal to consider. United Technologies, whose UTC Fire & Security branch owns integration firm Red Hawk, has offered $40 a share to purchase all outstanding shares of Diebold, which makes ATMs and operates a significant security integration business.
The offer represents a roughly 60 percent premium over the Feb. 29 close of $24.12. And stockholders may be eager to accept, as Diebold’s stock price has fallen nearly 50 percent in just the last six months and the proposal represents a price stockholders haven’t seen since November.
However, in a letter to UTC, dated March 5, Diebold non-executive chairman John Lauer called the offer “opportunistic,” and refused discussions with UTC, writing: “We are extremely mindful of our fiduciary duties to all shareholders and unanimously committed to the view that your unsolicited and opportunistic $40.00 per share offer is not in their best interests.
“Simply put, UTX’s proposed offer is far below what Diebold is worth. Furthermore, your overture, which comes at a time when we cannot responsibly engage in discussions, and the hostile nature of your approach, has convinced the Board that discussions now will not likely result in the best outcome for our shareholders.”
Because Diebold has been unable to file financial numbers in more than six months, the company feels its shareholders don’t have a good way of evaluating the deal. UTC counters that it is hardly its fault that Diebold cannot produce financial numbers in a timely fashion.
In a press release, UTC pegged the total enterprise value of its offer at $3 billion, though some Wall Street analysts have set the total lower. Perhaps most significantly, UTC has stated that “the proposal is not subject to any financing contingency.”
“It seems that UTC is beginning to resemble Tyco in its hey-day,” said Jack Mallon, managing director at Mallon & Associates, “attempting to gobble up mega-security companies and assets, which isn’t all bad, because at the end of the day, if it wasn’t for Dennis Kozlowski everything would have been great. Those acquisitions did hold up. “
UTC president and chief operating officer Louis Chênevert did nothing to counter Mallon’s analysis: “We have been growing aggressively the fire security business,” he acknowledged. “We’re also expanding margins in that business. It’s a very fragmented industry; that’s why we get so much leverage by applying our operating discipline. We see lots of opportunity to continue expanding that business. I like $10 billion businesses; there’s no doubt we can make it a $10 billion business.”
According to documents released by UTC, Diebold was initially contacted about this offer Feb. 19 and rebuffed discussions of a buyout. UTC decided to go public because “This transaction creates significant and immediate value for Diebold shareholders with no operational risk, while creating long term value for UTC shareholders,” said George David, Chairman and CEO of United Technologies, in a statement. “Diebold represents an excellent fit with UTC, with its strong market position, U.S. footprint, and balance between product and service revenues. In addition, Diebold will benefit from UTC’s international presence and disciplined operating systems.”
“That’s about market verticals,” said Dan Weiss, chief executive officer at Infrastruct Security, “that’s what UTC would potentially be buying, dominance in the closest thing to a regulated segment that isn’t regulated.”
“Diebold has a long track record in servicing the banking community,” Mallon agreed, “and they’re well respected with their security products over the years. It’s more recently that they’ve gone into the integration of security systems, and that is to my mind the fit with UTC. UTC has been acquiring integration companies, and Diebold has their integration operation, there’s where I think they’ll have the good foothold providing the integration services. Both companies are really straddling the lines between products and service, so, which will dominate? Time will tell. I think they will be formidable in the financial services market, but also far beyond that.”
Darrell Wilson, security director at Truliant Federal Credit Union, agreed Diebold has been successful in servicing its customers.
“If I call them now and say I have a problem, they will be here in a few hours. They are like the postman; you know they’ll show up,” he said. “That is where Diebold is succeeding; they cover that market.”
Under the ownership of another company, Wilson said Diebold be able to build its success in other areas, such as alarms and video installation, and offer more value-added services to security practitioners.
“If someone would acquire them it could broaden the services it offers to the financial market,” he predicted. SSN