In re Diebold Nixdorf, Inc. Sec. Litig.
| Decision Date | 30 March 2021 |
| Docket Number | 19-CV-6180 (LAP) |
| Parties | IN RE: DIEBOLD NIXDORF, INC., SECURITIES LITIGATION |
| Court | U.S. District Court — Southern District of New York |
Before the Court is the Rule 12(b)(6) motion to dismiss filed by Diebold Nixdorf, Inc. ("DN" or "the Company"), its former CEO Andreas W. Mattes ("Mattes"), its former CFO Christopher A. Chapman ("Chapman"), and its former COO Jürgen Wunram ("Wunram").1 Lead Plaintiff Indiana Laborers Pension and Welfare Funds ("Plaintiff")--on behalf of a putative class of purchasers of DN's securities--opposes the motion.2 For the reasons below, the motion is GRANTED, and the Consolidated Class Action Complaint ("CCAC") is DISMISSED without prejudice.
DN "is an international financial and retail technology company that focuses on the sale, manufacture, installation, and service of self-service transaction systems (such as ATMs and currency processing systems), point-of-sale terminals, physical security products, and software and related services."3 The present action relates, in significant part, to the Company's ongoing efforts to transform itself into a "services-led, software enabled company" and to divert resources away from its less profitable hardware segments. (CCAC ¶ 4.)
On November 23, 2015, Diebold, Inc. ("Diebold") entered into a merger agreement with one of its primary competitors: Germany's Wincor Nixdorf AG ("Wincor"). (Id. ¶ 5.) Mattes described the Diebold-Wincor merger ("the Merger") as a deal that would leave the resulting company "well positioned for growth in high-value services and software . . . across a broader customer base." (Id. ¶ 6.) The Merger closed in August 2016, and the combined entity became DN. (Id. ¶¶ 5, 14.) Diebold paid $1.8 billion in consideration to acquire a majorityof Wincor's shares, and Diebold took on more than $2 billion in debt to finance the acquisition. (Id. ¶ 9.)
Leading up to the Merger's closing, Mattes touted what he felt would be a smooth fusion of the two companies:
At base, Mattes expressed confidence that the Merger would proceed smoothly and generate the promised synergies for investors.4
The designated Class Period runs from February 14, 2017 to August 1, 2018. (Id. ¶ 1.) The Court has separated the misstatements alleged during the Class Period into loose,chronological groups. Although the allegations are voluminous, Plaintiff's contentions boil down to one theme: Defendants painted an unjustifiably positive picture of the Diebold-Wincor integration.
On February 14, 2017, DN issued a press release discussing its financial results for Q4 2016, which was the Company's first full quarter following the Merger. (Id. ¶ 48.) The results were optimistic, which Mattes attributed "to our collaborative teamwork during the first full quarter for our newly combined company." (Id.) He further opined that DN was entering 2017 "leveraging a stronger, fully aligned global sales force and a solid solutions portfolio with ample opportunity to succeed in the dynamic financial and retail markets." (Id.)
That same day, Mattes and Chapman hosted a conference call to discuss DN's earnings, and both discussed the steps that the Company was taking on integration. (Id. ¶ 49.) Mattes maintained that DN "continued to make progress" and explained that the Company's initial sales integration issues were "all . . . in the rear-view mirror" because, "for the first time, the sales team is fully aligned around our goals, quotas, and account plans." (Id. ¶¶ 50, 52 (brackets omitted).) Chapman echoed that sentiment, stating that teams across the Company were "working very diligently on integration activities anddriving cost synergies," which would "flow more substantially through the P&L as we progress in the year." (Id. ¶ 51.) Both expressed confidence that DN was on track to "deliver cost synergies of $40 million in 2017." (Id. ¶ 53.)
On February 24, 2017, the Company filed its 2016 Form 10-K, which was signed by Mattes, Chapman, and Wunram. (Id. ¶ 54.) The 10-K whistled the same tune regarding DN's financial prospects. Notably, the 10-K stated that DN was "executing a multi-year integration program designed to optimize the assets, business practices, and IT systems of [DN]," which would provide "an opportunity to realize approximately $160 million of cost synergies over three years." (Id. (brackets omitted).) The 10-K also highlighted the goodwill acquired in the Merger, which it described as being "primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources." (Id. ¶ 55.) Finally, Mattes and Chapman completed certifications, as required by the Sarbanes-Oxley Act ("SOX"), regarding DN's financial statements and internal controls. (Id. ¶ 56.)
Four days later, the Company issued a press release introducing its "DN2020" program, i.e., its integration plan. (Id. ¶ 57.) That same day, Mattes, Chapman, and Wunram hostedan Investor Day Conference, at which they explained DN2020 to attendees. (Id. ¶ 58.) They asserted that DN was already realizing benefits from the Merger and, indeed, that the "smooth integration of legacy organizations" was paving the way for up to $200 million in net savings. (Id. (brackets omitted).) Given the measures DN had implemented so far, Wunram wondered whether the Company's targets were "aspirational enough." (Id. ¶ 63.) Mattes closed the conference by saying the Company's integration targets "are a commitment that we will achieve." (Id. ¶ 66.)
While their tone was generally optimistic, Mattes, Chapman, and Wunram also noted that the Merger's success was not a sure thing. For example, Mattes said:
[When] we announced this and during the process and as you have experienced just like we did, doing a deal in Germany is not a trivial task and you have to go through quite a process to get it done. People were pointing out a lot of things that were going wrong; appreciate all the input. We lightheartedly depicted them here as alligators, so without going into everyone [sic] of those alligators, the main message is we went into this thing eyes wide opened and we've been wrestling down alligators one at a time, still a few more to go, but we feel very confident about how we're going to do this.
(Id. ¶ 59.) Mattes also emphasized that "60% of all the M&A deals that are being done fall short of the expectations" and stressed that DN was "spending a lot of time and energy on the integration" of Diebold and Wincor. (Id. ¶ 60.) Similarly,Wunram noted that management was "not naive" and was "aware of the risks" regarding the integration. (Id. ¶ 63.)
In early March 2017, Diebold issued its preliminary and final proxy statements. (Id. ¶¶ 67-68.) Those statements reiterated the Company's optimism when it came to DN's integration efforts. Both statements noted that DN had "continue[d] to make progress on [the] integration" and that the "sales team [wa]s fully aligned." (Id.)
On May 4, 2017, the Company issued a press release announcing its Q1 2017 earnings. (Id. ¶ 71.) The Company lowered its full-year 2017 revenue guidance to $5 billion (from $5-$5.1 billion) and its net loss estimation to between $50 million and $75 million (from $30-$55 million). (Id.) Mattes reported, however, that "[t]he transition to [DN was] complete" and that the combined entity was prepared to "begin [its] long-term transformation with the DN2020 program." (Id. ¶ 71.)
Later that day, Mattes and Chapman hosted DN's Q1 2017 earnings call. (Id. ¶ 72.) Mattes discussed the Company's progress on integration, noting that DN was "off to a good start" and that he was "encouraged by the early progress." (Id. ¶¶ 72, 78.) He emphasized that DN's "ability to coordinate numerous intersecting activities" gave him confidence that the Company "should be able to exceed . . . cost synergy targets forthe year." (Id.) Mattes also acknowledged, however, that Q4 2016's results were "weak," noting that DN did not "have a common management tool" and that there were "home-grown issues in Europe." (Id. ¶ 79.)
On the same day, DN filed its Q1 2017 10-Q, which touted DN2020's strategic benefits for the Company's financial, operational, and sales "excellence." (Id. ¶¶ 74-75.) The 10-Q also highlighted various "business drivers of the Company's future performance," which included the "integration of legacy salesforce, business processes, procurement, and internal IT systems; and realization of cost synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies." (Id. ¶ 76.) Like DN's 2016 10-K, Mattes and Chapman completed SOX-mandated certifications regarding DN's financial reporting and internal controls. (Id. ¶ 77.)
Several weeks later, on May 22, 2017, Mattes discussed DN2020's progress with investors and analysts in a presentation at the...
To continue reading
Request your trial