United Technologies Offers $2.63 Billion for ATM-Maker Diebold

United Technologies Offers $2.63 Billion for ATM-Maker Diebold


March 3 (Bloomberg) -- United Technologies Corp., the maker of Otis elevators and Chubb security systems, went public with its offer to buy Diebold Inc. for $2.63 billion after failing for two years to persuade the manufacturer of automated teller machines to discuss a combination.

The offer of $40 a share is a 66 percent premium to Diebold's $24.12 price on Feb. 29, United Technologies said yesterday in a statement. Diebold's board last refused to discuss a buyout on Feb. 21, letters provided by United Technologies show.

United Technologies may boost Diebold's performance by selling service contracts to commercial building owners like it does for Otis, said James Geisler, vice president of finance. Diebold, which is under U.S. investigation for accounting practices, fell 38 percent last year and plans to cut 5 percent of its workforce to slash costs.

``It's a very generous premium,'' said Gil Luria, an analyst at Wedbush Morgan Securities in Los Angeles, who has a ``hold'' rating on North Canton, Ohio-based Diebold. ``It's likely their offer will be accepted.''

Diebold spokeswoman Anna Istnick had no immediate comment on the offer.

The offer values Diebold at 24 times Luria's 2008 earnings estimate of $1.70 a share. Absent the offer, Luria had expected Diebold to trade at about 15 times earnings this year and to reach $25 twelve months from now. Diebold is the biggest U.S. ATM maker by market share, second in the world after NCR Corp., Luria said.

Higher Offer

If United Technologies is successful in its bid to buy the company, margins at Diebold would widen as United Technologies uses its productivity program and more efficient sales to markets such as China and India, Geisler said.

``We think this is very friendly to Diebold's shareholders and the most encouraging thing would be for Diebold to sit down with us,'' Geisler said. ``We have many options in front of us, but we are most hopeful we can have a dialogue with them.''

If the Diebold board agrees to a discussion and United Technologies can see more detailed information, a higher offer is possible, Hartford, Connecticut-based United Technologies said in its statement.

In a Feb. 21 letter to United Technologies Chief Executive Officer George David, Diebold Chairman John N. Lauer said the board discussed the offer, deciding it wasn't in his shareholders' best interest. He also asked that Diebold board members not be contacted further by United Technologies.

Going Public

``Nothing has changed since that meeting that warrants revisiting this issue,'' Lauer wrote, according to correspondence provided by United Technologies.

David, in a letter dated Feb. 29, urged Lauer to reconsider while the matter remained private, and said that United Technologies thought an agreement could be reached in 30 days.

``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,'' David wrote.

Margins at Diebold, now in the ``single-digits,'' could be raised to ``double-digits,'' over time under United Technologies ownership, Geisler said. About a quarter of equipment made by Diebold, which also makes voting machines, fits with United Technologies' security unit, he said.

Earnings Restatement

In January, Diebold said it would restate four years of results to change how it recognizes revenue following discussions with the U.S. Securities and Exchange Commission.

On Feb. 6, Diebold said in a statement it revised its 2006 revenue estimate to $2.93 billion. Sales in 2007 are now estimated at $2.95 billion, an increase of 1 percent, lower than the company's April projection of a 3 percent to 5 percent growth, the company said, announcing the completion of a review.

Diebold is ``still a good business and the offer is subject to due diligence,'' said Geisler.

About 20 percent of United Technologies' revenue comes from emerging markets, giving units like Otis, Carrier and UTC Fire and Security confidence in future growth because of increasing urbanization, the company said last week. Carrier and Otis are the world's biggest companies in their industries.

United Technologies gets more than 60 percent of its revenue from outside the U.S., Geisler said, whereas Diebold gets less than half. United Technologies had $54.8 billion in sales last year.

A Diebold purchase would be the biggest for United Technologies since the 2005 acquisition of Kidde Plc for about $3 billion. United Technologies typically makes about $1.5 billion to $2 billion in acquisitions annually.

United Technologies is getting advice from Morgan Stanley and Wachtell Lipton Rosen & Katz. Its shares fell $1.66 to $70.51 on Feb. 29. The stock, up 22 percent last year, is down 7.9 percent year to date.

BLOOMBERG