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Diebold comes out swinging

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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.

Like I'm not going to write about the T-Ray machine

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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.

Mircom to open U.S. distribution center

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Saturday, March 8, 2008
Mircom, a Canadian manufacturer of fire alarm systems, will soon have a new locale from which to base its U.S. operations. It's opening up a distribution center in Niagra Falls. The company has lots of customers on the West Coast and in the Southeast, but ultimately decided to stay close to home base in Toronto. This story says they'll be moved into a 12,500-square foot space by this spring. The company has 325 mostly Canada-based employees. They plan to initially hire 12 new workers for the Niagra Falls office. Mircom plans to add light manufacturing at this location, and more employees within the next 12 months.

There's no hiding in NMC's new central

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Friday, March 7, 2008
I had a chance to tour National Monitoring Center's new central station in Irving, Texas on my way to the airport from the TechSec conference last week. It's housed in a brand-spanking new plaza that, when I pulled up, only had one car in the parking lot (which happened to my host, Stefan Rayner, the central station manager's vehicle, still sporting California plates). Stefan gave me a tour of the new facility, which is nearly complete (minus a few pieces of furniture here and there), but won't be completely up and running until early this summer. Stefan explained all the renovations and additions they had made to the building and I even peeked in a currently unoccupied building next door to see how much work they had put into the space. I must say, I was very impressed with the design: from the sleek glass doors that made the space very open and breathable, to interesting features like the electrostatic glass viewing window that can be illuminated to see operators at work (see picture above). Stefan explained this feature was a way to show clients the central station space without distracting operators with continual walk-throughs. Certainly a good idea. Now, I must admit I've only seen a handful of central stations, but this one is above and beyond what is actually required for a central station in terms of design. It currently has 20 operator stations, (with room for at least five more), a roomy break area for operators (although it too is surrounded by glass, so any snoozing, for example, isn't a secret), a training/education room, conference room (that's the one with the electrostatic glass), a large circular reception area and two offices for management, which, by the way, are also surrounded by glass, so the boss can't sneak in any shut eye either. The only thing I would like to see at every central station is some type of exercise space for operators (and at my office, too, now that I think of it).

China Security & Surveillance

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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.

Israel flash back

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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.

ADT 1, Hollywood power couple 0

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Wednesday, March 5, 2008
For those of you who are keeping track of what's going on with the lawsuit against ADT filed last fall by the "Hollywood Power Couple," chock one up for ADT. Remember the Hollywood Power Couple? She (Sherry Lansing) ran Paramount Pictures, and he (William Friedkin) directed The French Connection and The Exorcist. Yeah, yeah, Power, shmower. So Sherry and William are suing ADT because they put in a $25K system and, they say, an ADT guard service did not respond quickly enough last summer when burglars busted into their Bel-Air manse, and stole "irreplaceable jewelry." On to the latest in PC vs. ADT: This paper's reporting that ADT got the go-ahead from an LA judge to go in and photograph the home as part of the company's defense. ADT can only be in the mansion for three hours and can't share the photos with anyone. Darn, I really wanted to post photos of the power couple's palace.

Can't get enough of the UTC-Diebold story

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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...

Fallout from the Diebold bid

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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 opednews.com (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.

Blame it on the dog

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Monday, March 3, 2008

Checkers the dog is the scapegoat once again. This Checkers isn’t Nixon’s pooch who took the fall as the only campaign contribution Nixon accepted in 1952, but instead an escape artist pitbull mix from L.A. who is blamed for setting off his owners security system multiple times after escaping from his crate, according to this article in The Los Angeles Times. Police responded to each of Checkers Houdini moves, despite the city's two false alarm limit policy, which should have alerted dispatchers of the multiple alarms and not sent police to respond. But apparently the city's 911 system isn't sophisticated enough to flag these alarms, so dispatchers just kept sending the police and costing the owner, and the city, money. This situation brings to light the administrative reality of implementing false alarm policies: most cities and municipalities are not prepared to track, enforce and collect false alarm fines. It’s a huge administrative task and, in most cities, requires personnel, or even a separate department, dedicated to the task of managing false alarms. One company, appropriately named Cry Wolf (owned by AOT Public Safety Corp.) has designed its business around false alarm policy management. The company can either completely manage a municipalities false alarm program and take a percentage of the fees collected, or install software programs and train employees to self-manage the false alarm program. Check out this article about about Cry Wolf from our March paper.

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