In corporate merger math, Diebold Inc.’s newest equation works this way: 2 plus 3 equals 1.
Green-based Diebold is buying Germany’s Wincor Nixdorf for $1.8 billion including debt, creating what will be the world’s largest ATM manufacturer and financial services software company with a new name, Diebold Nixdorf.
The move is the largest and most visible to date of the company’s ongoing plan to transform itself into what it calls Diebold 2.0, using a crawl, walk, run metaphor, following years of financial underperformance.
The combination of Diebold, the world’s second largest ATM maker, with third-largest Wincor Nixdorf will push NCR, currently the world’s largest ATM manufacturer, into the number two global position based on market share.
The new Diebold Nixdorf will have about $5.2 billion in annual revenue and between 35 to 40 percent of the world’s ATM market, industry analysts said.
Diebold on Monday said it will pay cash plus Diebold stock for Wincor Nixdorf. The deal is expected to close next summer pending regulatory approvals in the U.S. and in Europe.
The combined company will operate from headquarters in Green and Paderborn, Germany. Diebold in October announced a nonbinding offer to purchase the company.
Shares of Diebold fell in trading Monday, largely because the company also said it will cut its current dividend by about two thirds once the transaction closes, from an annual $1.15 a share to approximately 40 cents per share. Diebold last increased its dividend in 2013, closing out a 60-year stretch of annual dividend increases.
Shares finished down $2.51, or 6.7 percent, to $35. Shares are up 1 percent since Jan. 1 and are down 1.1 percent from a year ago.
‘Transformative deal’
Industry analyst Gil Luria of Wedbush Securities praised the Wincor Nixdorf purchase.
“This is a very transformative deal,” he said. In Diebold’s 156-year history “this is probably the most important deal they’ve ever done,” he said.
If Diebold is not yet in the “run” phase of its transformation, it is at least in a “jog” phase, Luria joked.
“We see this deal as a rare and extraordinary strategic fit,” Luria wrote in a note to clients. “In spite of being the No. 2 and No. 3 in the ATM market, the two companies have very little geographic overlap requiring minimal divestiture activity to get the deal approved.”
The two companies share a complementary geographic reach; Diebold is stronger in the Americas and Wincor Nixdorf is stronger in Europe.
The dividend cut is disappointing to investors who bought the stock for income, but it reflects a change of Diebold corporate philosophy to focus on growing earnings first, Luria said.
Diebold’s board likely will take another look at the dividend in upcoming years, he said.
Wedbush says it does and seeks business with the companies it covers in its research reports. It disclosed it buys and sells Diebold and NCR stock out of its brokerage inventory; it did not disclose any other relationships with the companies.
Andy W. Mattes, Diebold president and chief executive officer, will remain the company’s leader.
“Our new company will be well positioned for growth in high-value services and software – particularly in the areas of managed services, branch automation, mobile and omnichannel solutions – across a broader customer base,” Mattes said in a statement.
New stock
The boards of both companies have agreed to the purchase.
In addition to using cash, Diebold said it will issue new stock and expects to raise approximately $2.8 billion to fund the transaction, refinance the existing debt of both companies and provide liquidity.
The company will be raising $600 million beyond the level required by the deal, Luria noted. The company likely will hang onto the money to provide financial flexibility and a cushion; Luria said he does not expect Diebold to announce large deals, either purchases or divestitures, for at least several years.
Also as part of its transformation, Diebold in late October said it was selling its North American electronic security business for $350 million to Sweden-based Securitas. Green will retain the headquarters of what will be renamed Securitas Electronic Security.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ. His stories can be found at www.ohio.com/writers/jim-mackinnon.