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As Seen In Canton Repository: Question: “How has Diebold changed since the purchase of Wincor Nixdorf in 2015?”

By: Ryan Fulmer
Monday, March 6, 2017

In late 2015, Diebold submitted a takeover offer to Wincor Nixdorf shareholders. The offer represented a combination of cash and stock and was a 35% premium to the previous day’s stock price.

The merger was completed in August 2016, and the combined company now has sales of about $5.2 billion, with about 40% of revenue from North and South America, 40% from Europe, the Middle East, and Africa, and 20% from Asia. For Diebold, this acquisition significantly expands their worldwide presence, as almost two-thirds of their revenue was previously attributable to North and South America. Diebold Nixdorf cut the dividend from $1.15 to $0.40 per year, dramatically ending their 60-year record of dividend increases.

With a presence in over 130 countries and more than 275 million consumer retail transactions per day, Diebold Nixdorf is positioned to continue to benefit from the highly-recurring use of ATMs. For instance, consumers use cash in about 85% of all transactions globally, and the amount of cash in circulation since 2003 has increased 4 and 8% in the U.S. and Euro consecutively. Convenience for consumers and cost savings for banks have resulted in a projected increase in bank and non-bank ATMs globally by about 5.5%.

Technology has clearly changed how banks interact with their clients. According to JPMorgan Chase, annual teller transactions declined by about 100 million between 2012 and 2015. During that same time period, transaction-related staff declined by 12,000 employees. JPMorgan cited that it costs them $0.65 per deposit with a teller but only $0.08 through an ATM or $0.03 for remote capture on your cell phone!

Diebold Nixdorf operates two business segments: Service and Software and Product. The combination of the two companies has increased the Service and Software segment’s revenue, which has gross margins almost twice that of the product segment. In 2012, the combined gross margin was 25%, which has increased to about 27% and should continue to move higher.

The software business segment is the fastest-growing unit at about 8-10% per year, which boasts 40% gross margins--or nearly twice that of the systems segment. Since software’s revenue will grow more quickly than the other segments over the next several years, gross margin will also improve on a consolidated basis.

Additionally, the amount of recurring revenue is estimated to increase from 40 to 50% through 2020, which should reward investors with a higher valuation.

As banks continue to roll out next-generation ATMs across the world with improved functionality, Diebold Nixdorf should continue to benefit. This is already evident based on the February 28, 2017, press release confirming 2017 earnings guidance and providing 2020 financial targets.

In conjunction with the 2020 financial targets, they announced “DN2020” (or their “multi-year business integration and cost-savings program”), which they estimate will result in $200 million in cost savings. Realizing these cost synergies will be a good yardstick for measuring the success of the merger.

The announced plan looks to reinvigorate Diebold Nixdorf and achieve greater profitability, which, if all goes as planned, should help the stock price. Investors will scrutinize management over the next several years as many of them remember the $40 buy-out offer (or $3 billion enterprise value) from United Technologies in 2008.

Source: Company filings

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