updated 3/3/2008 3:26:25 PM ET 2008-03-03T20:26:25

ATM and ballot machine maker Diebold rejected on Monday a $2.63 billion takeover bid from United Technologies, saying the offer was inadequate.

The board of directors of the North Canton, Ohio-based Diebold Inc. urged its shareholders to take no action on the offer, even though it was about two-thirds more than its closing price on Friday.

"The board strongly believes that UTC's proposal significantly undervalues the company and fails to reflect Diebold's strengths and significant upside potential," said John N. Lauer, non-executive chairman of the board for Diebold. "UTC's proposal is an opportunistic attempt to buy Diebold at a time when shareholders do not have sufficient data to evaluate the offer."

A spokesman for Hartford-based United Technologies Corp. did not comment immediately.

UTC, parent company of jet engine-maker Pratt & Whitney, Otis elevator and Sikorsky Aircraft, said it made the unsolicited offer after attempting to negotiate a deal with Diebold for two years.

UTC offered $40 per outstanding share for Diebold, up from Friday's Diebold close of $24.12. United Technologies said the total enterprise value of the deal was about $3 billion.

"This transaction creates significant and immediate value for Diebold shareholders with no operational risk, while creating long term value for UTC shareholders," George David, United Technologies' chairman, said in a news release.

Diebold shares climbed $13.94, or almost 58 percent, to $38.05 in afternoon trading Monday after the company rejected the offer. Diebold has traded as high as $54.50 over the past year.

UTC shares fell $1.37, or 2 percent, to $69.14 in afternoon trading Monday.

Paul Nisbet, an analyst at JSA Research Inc. in Newport, R.I., said it's a good deal for United Technologies.

"I don't see anything negative about it," he said.

United Technologies has succeeded in using acquisitions to build up its fire and security business, "coming from zero three, four years ago," Nisbet said.

The fire and security business reported revenue of about $5.8 billion last year, up 21 percent from 2006.

James Geisler, vice president of finance of United Technologies, said the company announced its offer Sunday night because executives believe their offer is "so compelling we thought shareholders should know about it."

Geisler said Diebold's ATM presence in China is attractive to United Technologies, but Nigel Coe of Deutsche Bank-North America said Diebold's commercial security integration and monitoring business also "will help United Technologies gain more scale in the United States."

In a letter dated Feb. 21, Lauer said the board discussed United Technologies' overtures but determined "it was not in the best interests of the corporation or its shareholders to pursue discussions with UTC regarding a business combination with Diebold."

Hartford-based United Technologies, which is capitalizing on strong aerospace and defense industry trends, reported revenue last year of $54.7 billion, up 14.5 percent from 2006. Net income for the year was $4.2 billion, up more than 13 percent.

Diebold's presence in the ATM market is strong in China, where United Technologies' Otis elevator business also has produced strong revenue, Geisler said. United Technologies' network of sales and maintenance for the elevators can be adapted to the ATM business, he said.

Diebold, which began in the 19th century as Diebold Safe & Lock Co., announced last month it will cut 5 percent of its work force, or 800 jobs. The cuts come on top of a plan announced last year to save $100 million. The company has struggling with a sharp decline in revenue at its election systems unit and delays in Brazil, where it was to install a lottery system.

Diebold has faced criticism over the performance of some of its election machines.

The company has not issued any financial statements since April and is being investigated by the Justice Department and securities regulators over its accounting practices.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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