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On the Editor's Desk

by: Martha Entwistle - Friday, March 14, 2008
I'm sure everybody's heard about the most recent troubles at Heathrow airport, including yesterday's event, where a man scaled a fence and waltzed onto the runway before being challenged and then arrested. Where, oh where, is the security industry in all of this? The mainstream media and government officials are being allowed to spout all manner of wrongness and no one in the security industry is being interviewed or offering their two cents. This is the perfect time, whether you're in Europe or in Kansas, to offer up guest editorials or offer yourselves as technology and systems experts. Just look at this bit: Gordon Brown, the prime minister, said he was satisfied everything was being done to ensure security at Heathrow. Speaking after arriving at an EU summit in Brussels, he said: "I think the important thing about the Heathrow incident is that the person was detained, that all the security precautions went quickly into action ... and that all possible steps were taken so that when this incident happened the arrest took place. And I'm satisfied everything is now being done to ensure security at Heathrow is intact. We are determined to protect all passengers and all staff who go through Heathrow and every other airport in the country." What? Is this guy on crack? A man was allowed to walk right under a passenger airplane carrying a backpack! Hey, England, you got lucky. All possible steps were not taken in any way, shape, or form. There are some very inexpensive (relatively) solutions that would have alerted you the moment somebody started climbing the fence. Remember when I wrote about Optellios at ASIS? Heathrow just opened a $8.6 billion terminal. They couldn't pony up a bit more for some fiberoptic cable and some software to make sure their perimeter was secure? Or how about some off-the-shelf perimeter analytics? Anybody can do fenceline nowadays. There would have been buzzers going off like no tomorrow in the central command center at Heathrow as soon as that guy got within 10 feet of the fence and he never would have made the tarmac. I have major reservations about the people in charge of aviation security in England after reading the following: The former head of security at BAA, Norman Shanks, said a higher fence would not prevent further incursions and a serious clampdown on intruders would require sophisticated motion-sensor technology. A number of systems are available or under development, including CCTV technology that detects irregular movement. However, such a move would increase the cost of a Heathrow security bill that has risen by tens of millions of pounds since the liquid bombs scare in 2006. The perimeter at Heathrow is jointly patrolled by BAA security staff and the Metropolitan police. One aviation expert said it had not changed since the September 11 2001 attacks on the United States which showed al-Qaida's continued fascination with attacking aviation. A BAA spokesman said: "If there are lessons to be learned, they will be learned." A higher fence? Seriously? "Sophisticated motion-sensor technology"? What's wrong with that? You just spent $8.6 billion! There's wasn't $1,000,000 (and that's just an arbitrary large number - no way it would have cost that much) for some perimeter security? "CCTV technology that detects irregular movement"? Seriously, the security industry needs to be out there educating the general population about what's available. If the mainstream public knew about the technologies, and their relative affordability, they would not stand for a perimeter system at the largest airport in England going un-upgraded since 2001. That's borderline criminal.

by: Martha Entwistle - Thursday, March 13, 2008
Looks like I'm not the only one taking tours of Israel's security infrastructure. Here's a mainstream take from Slate. Of course, I've got some problems with it, but on the whole it's not bad. If anything, it makes me feel a little less special, obviously, if dentists and such can go on these sorts of tours. Anyway, I'd encourage you to read the Slate pieces if you enjoyed my dispatches. They confirm much of my conclusions, but their mainstream (and, I'd argue, borderline sensationalist) take is definitely a different angle.
by: Martha Entwistle - Wednesday, March 12, 2008
I knew this would happen. For whatever reason, people have picked up on this ThruVision announcement of its T-Ray technology and turned it into "it's like superman's x-ray vision" and ""it's like x-ray glasses." This is so stupid on so many levels its hard for me to deal with it. Do these morons not realize that we have x-ray technology already? Oh my god, a machine that can see through clothes! That's crazy! How do they not realize that the innovation here isn't that it can see through clothes, but that it's a passive technology, that it receives rays that your body (and everything) emits, rather than bombard you with x-rays, which could be hazardous to your health? This blogger might be the most wrong-headed. She calls her blog "Go Girlfriend," but if she's empowering her fellow female travelers with tripe like this they're probably not all that empowered: Remember those X-ray goggles your brother used to tease you? Remember how he told all his friends he could see "everything" with them, including your polka-dot panties? His dreams may finally be a reality the new ThruVision or "Strip Search" camera. She then recants, saying, essentially, that her use of the word "may" was completely irresponsible, but then she finishes with this nonsense: The technology raises more questions than it reveals though. Does it invade too much personal privacy in the interest of keeping us all safe? How much privacy are you willing to give up to keep terrorism at bay? How does it raise those questions exactly? Because while walking through a portal you'll appear as a faceless blob that no one could ever recognize and if you're carrying a large, concealed metal object someone will be able to tell? You want to keep it private that you're fond of metal chastity belts or something? Afraid it will pick up hidden colostomy bags? This is the kind of muddleheaded reactionary thinking that keeps us from actually paying attention to security. How can you make a privacy argument about this when you allow your carry-on baggage to be screened with an x-ray machine, and your checked baggage to be physically pawed through, every time you travel? The Atlanta Journal Constitution doesn't do a bad job with the story, and even raises the point that the T5000 is designed to spot large objects, and not smaller objects that might be found in a shoe, but the author doesn't bother to ask anyone in the security industry whether this is in any way unique. If the author had asked me, I might have said: "Isn't that what Brijot's been doing for two years?" I don't think its millimeter technology is harming anyone, and its stuff can "see through clothes" from 80 feet away, like ThruVision's can, at least to pick up the giant packages I'm supposed to be impressed ThruVision can pick up. Why isn't anyone making ridiculous reactionary comments about Brijot? If I were them, I'd be pissed.

by: Martha Entwistle - Monday, March 10, 2008
Sorry I didn't post this earlier, but you can find a copy of Diebold's March 5 letter to UTC here. In no uncertain terms, Diebold Non-executive Chairman of the Board John N. Lauer makes it clear that Diebold isn't interested in being acquired. Here are some choice paragraphs: UTX is opportunistically seeking value that belongs to Diebold shareholders Your $40.00 per share offer is 27 percent below Diebold's 52-week high of $54.50 reached only seven months ago. Moreover, your offer is an opportunistic attempt to acquire Diebold at an inadequate price that does not reflect significant progress against our current strategic initiatives, a U.S. ATM and financial self-service environment that is anticipated to improve in 2009 from recent lows, important opportunities for growth overseas and cost initiatives that are on track to eliminate an initial $100 million from our cost structure by the end of 2008. I agree that UTC is being opportunistic, but can you blame them? Hey Diebold board, if you don't want to be acquired, get your stock price up. It's in free-fall last time I checked, and it's going to get worse if you rebuff this offer. No basis for Diebold shareholders to accurately determine appropriate value As we have clearly stated, given that we are in the process of working to become current in our financial results, there is simply insufficient financial information for investors to assess valuation. Accordingly, we have been unable to provide forward-looking guidance to date. As we have previously reported, the Company is working diligently to complete this process as quickly as possible. Hence, it would be imprudent for us to engage in any change-of-control discussions at this time. We believe that no responsible, objective management team or Board would assert otherwise and have heard from a number of our shareholders in the last few days that share this view. Seriously? Diebold's financial numbers are way late. Not just a little late. If I'm a shareholder, I'm thinking: "Throw us a bone with some good-looking numbers if you want us to believe we shouldn't take what we can get at this point." Misleading characterizations by UTX We take exception to your assertion that UTX has "sought for more than two years to engage Diebold in constructive discussions." This statement is inaccurate and misleading. Prior to your letter dated February 29, 2008, UTX had never made a firm proposal to acquire Diebold. In fact, UTX approached Diebold on only two occasions with non-specific inquiries -- first a brief, informal conversation that took place roughly two years ago between an investment banker (who did not identify his client) and a Diebold Board member; and second, your letter dated February 19, 2008, which referenced a vague proposal without any specific price. Two points of contact separated by two years does not, in our opinion, represent "constructive discussions to increase shareholder value" as you have publicly stated. This is tasty. Particularly for me. I've noted in past posts how certain financial journalists are acting like they knew all along about this supposed two-year courtship. Hogwash. They're just going on UTC's verbiage, which smelled a little funny to me from the outset. If this courtship has been going on so long, how come UTC released nothing older than that Feb. 19 letter? Point for Diebold here. UTC's definitely trying to spin public favor, and the financial analysts, wanting desperately to look insider are buying it. 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. This is good work on Diebold's part. Even though they come off more than a bit whiny, they've put put all the onus back on UTC. It's passive-aggressive, considering the "time when we cannot responsibly engage in discussions" is pretty much their own fault, but I think it works, and they engage in a little spin of their own: "Simply put, blah, blah." Actually, it's not all that simple. People I've spoken to think the offer is about at one times trailing revenues, which is pretty much what firms in the security space are going for right now. Sure, UTC should be willing to pay a bit more of a premium for Diebold's size, but Diebold is in a tailspin right now, by most accounts, is laying people off, and can't get its numbers out. I'm thinking that damages your value a bit.
by: Martha Entwistle - Monday, March 10, 2008
This story is all over the place, so, of course, I feel the need to comment. Basically, ThruVision has come up with a non-invasive, passive technology for scanning people for hidden weapons, etc. And it does sound cool: Unlike current security systems that use X-rays, the ThruVision system exploits terahertz rays, or T-rays. This electromagnetic radiation is a form of low level energy emitted by all people and objects. These are able to pass through clothing, paper, ceramics and wood but are blocked by metal and water. The system works by collecting these waves and processing them to form an image which can reveal concealed objects. "If I were to look at you in terahertz you would appear to glow like a light bulb and different objects glow less brightly or more brightly," said the firm's spokesperson. "You see a silhouette of the form but you don't see surface anatomical effects." So, let me get this straight: It can find stuff made out of metal and water. 1. Metal detectors seem to work pretty well. 2. So this is for finding liquid explosives? If I'm right with assumption 2, I guess I can see the point of this. After all, anyone who wanted to hide a liquid strapped to an inner thigh could do so at any point right now and walk it onto a plane. But the applications are pretty few - aviation only, right? What are you going to do, stop all people from bringing drinks into public spaces? I'm just not sure this technology upgrade is all that interesting application-wise.

by: Martha Entwistle - Friday, March 7, 2008
I was cruising around my standard financial pages today, which includes The Motley Fool, a sort of consumer-plus investing strategy site (I probably read it because they print bits of it in my local paper). I was surprised to see a glowing account of China Security & Surveillance, a manufacturer that seems to be way under the radar for the amount of business its doing. Here's the Fool's take: Highly-rated China Security is considered by some to be a stock on sale. The security company is seeing not only rapid sales growth, but consistent profitability without an extreme valuation. The company recently reaffirmed strong guidance for first-quarter and full-year 2008 based on $100 million in new security contracts won in the final quarter of 2007. Despite the optimism, in a market where many companies are increasingly downgrading forward growth projections, China Security trades at a very palatable 8.7 times forward earnings. They did $65 million in 3Q sales in 2007. Did you know that? I never would have guessed they were that big a company. Looking at their growth, they could easily do $300 million in 2008. Where are all those cameras going? How come I never hear of anyone actually installing their equipment? Is everything going into China? If so, why are they listed on the NASDAQ? Edit: My fault - A savvy reader notes that China Security trades as CSR on the NYSE. Find the details here. More from my colleague, Ling-Mei Wong, who's an editor at A&S International Magazine, an English trade publication based in Taiwan. "We have a sister publication in English called China Best Buys, which is based in China. According to their reports (the magazine just launched last year and doesn’t have its own Web site yet), CSST was listed on the New York Stock Exchange last October. It pretty much corners the market for security, being very aggressive with manufacturing mergers. (From a draft of my colleague’s article: “CSST’s subsidiaries encompasses all major products, from front-end to back-end devices, such as HTZ and Minking for box, bullet and speed dome cameras; DIT for digital transmission devices; HighEasy for compression board products; Chenova and Skyvision for DVRs; Stonesonic for LCD monitors; and Longhorn and Alean for alarm detectors.”) A newly formed division within CSST is China Security and Surveillance Manufacturing, or CSSM, dedicated to managing manufacturing. As you mentioned, most of these brands are unknown outside of China, but domestically, CSST is doing very well. Having the bragging rights to be the first Chinese security provider to go public in the United States has also boosted its credibility." There you have it. Keep an eye on CSST and CSSM.

by: Martha Entwistle - Thursday, March 6, 2008
Andrew Wray, over at Infrastruct, was kind enough to take time away from promoting his big acquisition to dig out of his camera a video of me shooting that cool corner shot gun when we were in Israel together. Talking to the military guys on the trip, they were a little skeptical of the accuracy, and they felt a 9mm bullet might not be the best choice, since it often travels right through a bad guy without actually disabling him (or her, I suppose). You'll also see that the Israeli shooting instructor was fairly certain that I was a pansy (I was wearing a blue blazer, after all) so he helped me steady the gun for the test shot. Still, I like this video. I couldn't help but add a soundtrack. By the way, you can see all the Israel videos on my YouTube channel.
by: Martha Entwistle - Wednesday, March 5, 2008
So, the latest from the UTC camp is this: United Technologies Corporation remains committed to its offer. Diebold's financial and stock performance and the inability of Diebold's leadership to file timely financial statements are not valid reasons to avoid a dialogue with UTC. As we say on the playground: "Ohhh, burn!" UTC reaffirms its proposal to purchase the outstanding shares of Diebold for $40 per share cash, a 66% premium to Diebold's closing stock price on February 29th. UTC remains ready to discuss its proposal with the Diebold Board of Directors. UTC's management team, and financial and legal advisors are available to meet with Diebold and begin due diligence immediately. I like this idea that UTC's C-level people are all just hanging around in a board room waiting for Diebold's call. I hope they brought snacks...

by: Martha Entwistle - Tuesday, March 4, 2008
I thought you guys might be interested in how the consumer press is treating this UTC bid for Diebold. Here's a round-up: The AP, per usual, plays it pretty straight, which is a good thing. They let the analysts do the talking: Nicholas Heymann, an analyst at Sterne Agee, said Diebold's board of directors will be under pressure to sell. "Here's $40. See if there's any way in the world you can explain to shareholders you'd be up to $40 in the near future," he said. ... Page Davidson, a lawyer for Bass, Berry and Sims in Nashville, which typically represents sellers in acquisition deals, said the price offered by United Technologies will be hard to reject. "At that kind of premium, it's going to be pretty difficult to not engage in some kind of process now in response to pressure from the shareholder base," he said. "The board's fiduciary duty is to take the action it believes is in the best long-term interest of shareholders." But here's my favorite quote: Nigel Coe, an analyst at Deutsche Bank-North America, called Diebold a "fixer-upper." Then, in another AP story, there's talk that the bid will be upped: Robert W. Baird analyst Reik Read said United Technologies will make a larger offer after Diebold holds its annual meeting in the spring. He believes Diebold is worth at least $45 per share, and possibly more than $50. Read upgraded the stock to "Outperform" from "Neutral," and raised his price target to $45 per share from $29. "We anticipate United Technologies may raise its bid, and believe there are other potential suitors for Diebold, including Wincor, Tyco and Honeywell," he wrote. Jefferies & Co. analyst Yvonne Varano agreed that another bid could come, but downgraded the stock to "Hold" from "Buy," saying it will be some time before Diebold is willing to consider an offer. More than $50 a share? Nearly a 100 percent premium? You'd think shareholders would be happy with that, no? Now for some opinion pieces. The Wall Street Journal's "Deal Journal" interviewed an MIT poli-sci professor, asking if UTC knows what it's getting into with the whole Diebold voting machine debacle. Here's an interesting selection: DJ: What advice would you give UT? SA: My advice would be, be very, very open. People ran into problems on the PR side because they didn’t share their software. The key is to lead the way toward open-sourcing the software. This is an industry that was built on trade secrets and not intellectual property. So my advice to them would be to change the industry and take the lead on open-sourcing. They would win over the computer-science world which has been crazy to get open-source developed for voting technologies. That would be the really interesting strategic step they could take. And it would help with the questions of secrecy, which have really dogged Diebold. I would try to turn the whole Diebold electronic voting conspiracy theory on its head, and they could do that with out compromising the integrity of the system and probably improving it. Hey, I'm a security guy, but I know integrators love open-architecture, so I'm all for that. But I guess there's some question if that would make the voting machines really easy to rig. In the long term, though, I'd be shocked if UTC kept the voting machine business going. I'd bet they'd just jettison that altogether. This is a financial services play, pure and simple, if you ask me. Here's the Barron's blog take on the offer. Bob O'Brien notes that while for some the offer came as a surprise, For United Tech, it has been a marathon, not a sprint: the company began trying to woo Diebold over two years ago. Diebold itself said that its board has kicked UTX’s interest around routinely, including three times in the last month alone, but always comes to the same conclusion: it’s not interested. Well, isn't he the dialed-in insider type. And I'd be remiss if I didn't include some of the whack-jobs in the round-up. Here's a brilliant little number from (the title of which makes no sense to me - is it op-ed, or is it news?). It's all gobbeldy-gook nonsense, but here's my favorite paragraph; Thus far, Diebold’s board has rejected United Technologies’ $2.6 billion offer. However, the multinational is very likely not to give up and could take the offer to the shareholders of Diebold. So, we may see the next election counted in large part by a defense contractor. They already virtually determine the outcome of elections through their contributions and their control of the media, e.g. GE’s ownership of NBC. If this purchase goes through, they will be counting the vote in secret with no independent review. Um, 1. the offer is to the shareholders, 2. just because you make the machine that does the counting doesn't mean you actually do the counting (i.e., Braun made my coffeemaker, but I still had to wake up and make my own dang coffee this morning), 3. I love how UTC magically becomes GE in this paragraph; does this dude think that the boards of directors of UTC and GE commiserate on how to screw the American people? I'm guessing they don't talk to each other much, 4. again, does this guy really think UTC will somehow be counting votes in secret with no independent review - like local election officials are just witless morons? My local election officials are ornery and extremely wary of outsiders. I'm guessing they're not just going to cede all of their responsibility because someone made a voting machine for them.

by: Martha Entwistle - Sunday, March 2, 2008
How's this for Monday morning news: UTC has made an unsolicited offer to buy Diebold for $2.63 billion (yep, that's "b" for billion). Not that it doesn't make a lot of sense. Since UTC bought Red Hawk and consolidated its installation and integration business in the United States under that brand, it's been number 2 in the financial vertical and none too subtle about its intentions to be number 1. This would obviously make them number 1 (and pretty much unable to see number 2 in the rearview mirror). Might that be an anti-trust violation? I have no idea, but regulators might want to take a look at that. Look for me to gather up some "wow" quotes for the newswire on Thursday. For fun, though, I'll leave you with some of the indication of just how hostile this takeover might be. Here's the end of a response letter John Lauer, chairman of Diebold's board, sent to George David, chairman and CEO of UTC: In addition, we respectfully request that, from here forward, neither you nor any other representative of UTC contact any member of the Diebold Board. And then here's David's response to that: Failing an ability to engage in discussions with Diebold’s board and management, we believe it is in your shareholders’ interests to know of this proposal. Although you directed me in your last letter not to have further contact with Diebold board members, I am urging a timely response now while the matter remains confidential. Hmmm, wonder why I know about this...