After failing to find a buyer for its election systems division, Diebold Inc. said Thursday that it is restructuring and renaming the unit to make it more independent.
The automated teller machine company also said that several orders the unit had been expected would likely be pushed out, and it slashed its guidance. Related Link
Thomas W. Swidarski, Diebold's president and chief executive, said in a press release, "Given our concerted evaluation of all strategic alternatives available to us at this time, this is the most appropriate course of action for Diebold and all its stakeholders."
Mr. Swidarski was not available for an interview Thursday, Mr. Jacobsen said.
The voting machines have long been a lightning rod for criticism, as activists questioned their reliability and security. These concerns were exacerbated by a 2003 fund-raising letter to Republican supporters in which Walden O'Dell, Diebold's chairman, president, and CEO at the time, wrote that he was committed "to helping Ohio deliver its electoral votes to" President Bush, fueling fears that Diebold's machines could be rigged. Mr. O'Dell left the company in 2005.
The unit is getting a new name, Premier Election Solutions, and its own board. It will remain a Diebold subsidiary, but Mr. Jacobsen said the parent company would not "rule out the possibility of divesting a portion or all of its ownership in the newly realigned company."
Though the election unit will have more autonomy, Mr. Jacobsen said "public scrutiny will always be an issue and that needs to be managed. And a name change and getting more independence won't necessarily alleviate us of that obligation."
Gil Luria, a analyst with Wedbush Morgan Securities, said the election systems division has been "a distraction and generator of bad publicity and not strategic" to Diebold.
"This business represents 5% of revenue and 100% of bad public relations," he said.
By changing the name, Mr. Luria said, Diebold is attempting to put the unit "more at arm's length" and is opening the door for a possible spinoff, though he said he did not think it would fetch much in a sale.
Mr. Luria said Diebold will likely be wary of selling or spinning off the unit before the 2008 presidential election, because that might suggest to voters and the media that it was trying to avoid handling problems with the technology.
Mr. Jacobsen said the elections business tends to be "lumpy."
The company said that many states have decided to hold their primaries earlier than usual next year, and "have significantly delayed purchasing decisions."
Diebold lowered its 2007 revenue guidance for the election systems unit by $120 million, to a range of $65 million to $95 million. That is expected to cut into earnings this year by 27 cents a share.
Chris Riggall, a spokesman for the election systems unit, said the renaming "reinforces" Diebold's desire "to create a more independent operating structure."
The unit will handle its own quality control, research and development, compliance, legal, sales, communications, and human resources operations.
Dave Byrd, who will remain the unit's president but now reports to the new board, said in a press release, "This is both a fresh identity for our company and a unique opportunity for us to concentrate our focus solely on providing best-in-class elections solutions."
Diebold entered the election systems business in January 2002 by purchasing Global Elections Systems Inc. for $24.7 million.
Kartik Mehta, an analyst with First Horizon National's FTN Midwest Securities, said that the Global acquisition was not "necessarily a bad thing at the time" and that Diebold was able to make it into a profitable company.
But the unit has become a drag on Diebold, and it now makes sense for the parent to rid itself of the elections systems and "focus in on its core businesses — the ATM business and the security business," Mr. Mehta said. "I think it's the right move to walk away and make it a separate company."
Diebold's stock fell sharply; it was trading at $44.11 a share Thursday afternoon, down 5.26% from Wednesday's close.
Mr. Luria called the market's negative reaction "completely irrational."
"That's more a statement on the health of the market than it is on how much impact this has on Diebold," he said.
