March 3 (Bloomberg) -- United Technologies Corp., the maker of Otis elevators and Chubb security systems, went public with its offer to buy Diebold Inc. for $2.63 billion after failing for two years to persuade the manufacturer of automated teller machines to discuss a combination.

The offer of $40 a share is a 66 percent premium to Diebold's $24.12 price on Feb. 29, United Technologies said yesterday in a statement. Diebold's board last refused to discuss a buyout on Feb. 21, letters provided by United Technologies show.

United Technologies may boost Diebold's performance by selling service contracts to commercial building owners like it does for Otis, said James Geisler, vice president of finance. Diebold, which is under U.S. investigation for accounting practices, fell 38 percent last year and plans to cut 5 percent of its workforce to slash costs.

``It's a very generous premium,'' said Gil Luria, an analyst at Wedbush Morgan Securities in Los Angeles, who has a ``hold'' rating on North Canton, Ohio-based Diebold. ``It's likely their offer will be accepted.''

Diebold spokesman Mike Jacobsen didn't immediately return a phone call today seeking comment.

United Technologies repeated its 2008 forecast for $4.65 to $4.85 a share including the proposed Diebold acquisition, the company said in a statement today. United Technologies is getting advice from Morgan Stanley and Wachtell Lipton Rosen & Katz.

United Technologies fell $2.09, or 3 percent, to $68.42 at 9:55 a.m. in New York Stock Exchange composite trading. Diebold climbed $14.48 to $38.60.

Growth Question

``We're left perplexed where the growth will come from at Diebold, given that about 61 percent of revenues are tied to the U.S. and financial sectors,'' wrote Credit Suisse analyst Nicole Parent, who has an ``outperform'' rating on the stock. ``Given deterioration within the banking sector and increasing odds of a U.S. recession, it's hard to view this acquisition as enhancing United Technologies' growth profile.''

The offer values Diebold at 24 times Luria's 2008 earnings estimate of $1.70 a share. Absent the offer, Luria had expected Diebold to trade at about 15 times earnings this year and to reach $25 a year from now. Diebold is the biggest U.S. ATM maker by market share, second in the world after NCR Corp., Luria said.

If United Technologies is successful in its bid to buy the company, margins at Diebold would widen as United Technologies uses its productivity program and more efficient sales to markets such as China and India, Geisler said.

`Friendly' Bid

``We think this is very friendly to Diebold's shareholders and the most encouraging thing would be for Diebold to sit down with us,'' Geisler said. ``We have many options in front of us, but we are most hopeful we can have a dialogue with them.''

If the Diebold board agrees to a discussion and United Technologies can see more detailed information, a higher offer is possible, Hartford, Connecticut-based United Technologies said in its statement.

In a Feb. 21 letter to United Technologies Chief Executive Officer George David, Diebold Chairman John N. Lauer said the board discussed the offer, deciding it wasn't in his shareholders' best interest. He also asked that Diebold board members not be contacted further by United Technologies.

``Nothing has changed since that meeting that warrants revisiting this issue,'' Lauer wrote, according to correspondence provided by United Technologies.

Voting Machines

David, in a letter dated Feb. 29, urged Lauer to reconsider while the matter remained private, and said that United Technologies thought an agreement could be reached in 30 days.

``Failing an ability to engage in discussions with Diebold's board and management, we believe it is in your shareholders' interests to know of this proposal,'' David wrote.

Margins at Diebold, now in the ``single-digits,'' could be raised to ``double-digits,'' over time under United Technologies ownership, Geisler said. About a quarter of equipment made by Diebold, which also makes voting machines, fits with United Technologies' security unit, he said.

Diebold's touch-screen voting machines have drawn criticism over the potential for tampering, and U.S. legislation to require paper trails and force companies to reveal computer source code has delayed purchasing decisions. Several states have been reviewing the technology and California limited the use of machines from Diebold and two other companies.

Earnings Restatement

In August, Diebold said it wasn't able to find a buyer for the elections-systems unit because of the political uncertainties. It renamed the division Premier Election Solutions and established a separate board to oversee it.

Last month, Diebold cut 800 jobs, or about 5 percent of its workforce on declining demand for ATMs amid reduced construction of U.S. bank branches. The company forecast sales from the automated teller unit will be unchanged from last year or fall as much as 5 percent.

In January, Diebold said it would restate four years of results to change how it recognizes revenue following discussions with the U.S. Securities and Exchange Commission.

On Feb. 6, Diebold said in a statement it revised its 2006 revenue estimate to $2.93 billion. Sales in 2007 are now estimated at $2.95 billion, an increase of 1 percent, lower than the company's April projection of a 3 percent to 5 percent growth, the company said, announcing the completion of a review.

Diebold is ``still a good business and the offer is subject to due diligence,'' said Geisler.

Emerging Markets

About 20 percent of United Technologies' revenue comes from emerging markets, giving units like Otis, Carrier and UTC Fire and Security confidence in future growth because of increasing urbanization, the company said last week. Carrier and Otis are the world's biggest companies in their industries.

United Technologies gets more than 60 percent of its revenue from outside the U.S., Geisler said, whereas Diebold gets less than half. United Technologies had $54.8 billion in sales last year.

A Diebold purchase would be the biggest for United Technologies since the 2005 acquisition of Kidde Plc for about $3 billion. United Technologies typically makes about $1.5 billion to $2 billion in acquisitions annually.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net. To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: March 3, 2008 10:16 EST