United Technologies Corp. will need to raise its $40-per-share cash offer for Diebold Inc. substantially if it hopes to succeed in its unsolicited bid for the Canton, Ohio-based maker of automated teller and voting machines, analysts said.
After Hartford-based UTC made its $3 billion offer March 2, Diebold’s stock shot up 60 percent in a day to close at just under the offer price even though Diebold rejected the bid.
Since then, Diebold’s stock has continued to hover around $40 a share, raising the question: Will UTC sweeten the pot or abandon the chase?
“It’s almost a 50-50 situation,” said Gil Luria, an analyst with Wedbush Morgan.
“Diebold is due to report by the end of July,” he added. “At that point, United Technologies can reassess. But judging by preliminary numbers, it will have to offer substantially more. I don’t think they can get it for less than $50 a share.”
An analyst for Robert W. Baird & Co. said in a May 6 report that he sees $45 as a “reasonable” offer from UTC.
United Technologies declined to comment. In its last public statement on Diebold, issued March 27, the company said it had accumulated 2.28 million Diebold shares, or a 3.5 percent stake. “We remain committed to our offer,” Jim Geisler, UTC vice president for finance, said at the time.
Filings Overdue
The UTC statement went on to say Diebold’s board had refused requests for “constructive discussions and due diligence” and that the New York Stock Exchange had notified Diebold that it was at risk of delisting due to its failure to file timely financial statements.
Diebold immediately responded, saying, “UTC’s assertions regarding a potential NYSE delisting are highly misleading. Diebold does not believe it faces any threat of delisting until at least September 17, 2008, at which time the NYSE, at its discretion, can grant an extension for an additional six months.”
Diebold is way overdue with its required quarterly filings with the Securities and Exchange Commission. It hasn’t turned one in since last spring.
On April 30, the company provided an “estimated” revenue picture for the first quarter. It said it expects to make its next official filing with the SEC after the second quarter ends June 30.
‘Hair On It’
The company’s sketchy financials prompted Credit Suisse analysts Nicole Parent to say, “(Diebold) has a lot of hair on it including no audited financials, making us first question how (United Technologies) arrived at the full, $40/share offer.”
Diebold has other risks as well. The SEC has been investigating the company’s practices, and the U.S. Department of Justice recently announced that it has joined that investigation.
Also, many local and state governments have raised questions about the security of Diebold’s voting machines, and that may cut into future sales.
“In addition,” Reik Read wrote in his May 6 report for Robert W. Baird & Co., “the existing install base may need retrofits and alterations to comply with voting laws and regulations, which can add substantial cost.”
On the positive side, Read said, Diebold has a strong franchise — 7,400 ATMs installed in banks — and good prospects for ATM sales in Eastern Europe, Brazil and China, where middle classes are growing.
While the key ATM customers in the United States — the regional banks — are struggling with credit woes, Read said Diebold expects them to rebound in 2009.
Luria of Wedbush Morgan said Diebold intends to resist suitors. “The board is convinced Diebold can do best for shareholders by staying independent,” he said.
Ohio Law
Luria said Diebold would have a couple of advantages in a potential takeover fight with UTC: its own poison pill rules and Ohio’s business takeover laws.
Under that state’s law, the board is permitted to consider not only shareholder interests when weighing a takeover bid, but also the interests of its customers and the Ohio economy.
Plus, under Ohio law, only the shareholders as of the day before a takeover offer are allowed to vote on a proposed deal.
Luria said he doesn’t know of other bidders. But if UTC becomes “very aggressive,” Diebold would be apt to try to find some in order to obtain the highest possible price, he added.
On the other hand, a decision by UTC to withdraw its $40 offer and pull back, “would likely negatively impact (Diebold’s) share price,” Read said.
Diebold traded well about $50 a share only last summer.
