United Technologies Goes Public With $3.0 Billion Bid for Diebold

Implications: UTX has made an unsolicited bid for ATM manufacturer Diebold for approximately $3.0 billion in an all cash offer. UTX believes Diebold would benefit from its "international presence and disciplined operating systems." UTX has been pursuing Diebold for the last two years, however, Diebold's management has rebuffed previous attempts by UTX to merge or be acquired. UTX is now making public its intentions to acquire Diebold by going directly to its Board, however, the Chairman of the Board of Directors for Diebold has also rebuffed UTX's offer to acquire Diebold. UTX has been eyeing Diebold's Security Systems Unit and other computer hardware in an attempt to breathe some life into its fledgling Fire and Security Unit that UTX acquired through acquisitions in 2004. UTX's CEO, George David, would also like to close a big deal such as 'Diebold" before his anticipated departure from UTX by year end. UTX's offer is roughly 27% lower than Diebold's 52-week high of $54.50 in July 2007.

Analysis: Diebold has faced its share of pricing pressures, staff reductions, regulatory scrutiny, decline in market share in its ATM segment and what now appears to be a potential hostile takeover bid by UTX, who wants to acquire Diebold for approximately $3.0 billion. UTX is most interested in Diebold's Security Systems Unit, which accounts for approximately 25% of Diebold's revenue, however, UTX is willing to acquire the whole enchilada to drive growth in its fledgling Fire and Security Unit.

1.  Diebold recently announced job cuts of approximately 800 employees, due to regional and national banks cutting their budgets for new branch expansion, because of major write downs and losses with some of Diebold's largest clients

2.  Diebold also revised its accounting practices and how it recognizes revenue after an SEC investigation, which resulted in a boost in revenue by $31 million in 2007 and by $27 million in 2006. However, Diebold has not issued any financial statements since April 2007, pending the completion of an investigation by the DOJ

Takeaway:  Diebold's ATM Unit has taken several hits in the last two years, resulting in a decline in global market share. In addition, Diebold's Voting Machines Unit has also took a pounding with voting machine irregularities, however, Diebold has not been able to offload the business  and the unit has depressed Diebold's revenue. UTX is prepared to capitalize  on Diebold's woes because of its interest in Diebold's Security Systems Unit, which would complement UTX's Fire and Security Unit. We'll have to watch and see how what appears to be another battle for control plays out and whether UTX gets the gold or whether Diebold can stave off a potential hostile takeover bid.