What now for Stratasys after Nano Dimension gives up?

Just over a year after Ness Tziona-based 3D printer company Nano Dimension (Nasdaq: NNDM) began to buy up shares of Stratasys (Nasdaq: SSYS), based in neighboring Rehovot, and four months after it began to attempt a hostile takeover of the company, it has given up, and at the end of last week it announced that it was foregoing the move.

Nano Dimension’s defeat is the result of a poison pill strategy adopted by the Stratasys board last year, a few days after Nano Dimension’s share purchases became known, which would have blocked the takeover attempt. The court to which Nano Dimension applied in an attempt to challenge the validity of the poison pill hinted to it that its arguments might not be accepted.

As well as the poison pill, Nano Dimension was impacted by US-based competitor 3D Systems (NYSE: DDD), which entered the picture in early June when it made its own bid for Stratasys. The competition between the two potential buyers pushed up their bids, and it appears that Nano Dimension decided that it did not want to go above the $25 per Stratasys share that the bidding reached.

That price values Stratasys at $1.7 billion, representing a 34% premium over its market price. Nano Dimension itself has a market cap of just $818 million, less than the value of its cash.

This brings to an end a takeover bid in which nearly $200 million were invested, of which $178 million were spent on buying up shares, and the rest on fees to lawyers, banks, and so forth. It could be, however, that Nano Dimension will come out of it all without loss. It currently holds 14.1% of Stratasys, a stake worth about $180 million. If Stratasys accepts 3D Systems’ bid and merges with it, at the current level of the bid the stake will be worth $203 million. 3D Systems’ offer is a combination of cash and shares, and is currently worth $20.9 per Stratasys share. If Nano Dimension hangs onto its Stratasys shares and a deal is completed, it will then become a prominent shareholder in 3D Systems.

Nano Dimension chairperson and CEO Yoav Stern said, “We began our efforts to structure a friendly transaction with Stratasys with a clear focus on generating value for both companies’ shareholders. While we continue to believe that a combination of our companies has both strategic and financial merit – particularly given our offer provides far more certainty and guaranteed immediate $25 per share all-cash value, better than any other alternative currently available to Stratasys shareholders – this idea was rejected by an entrenched Stratasys board intent on manipulating the facts and preventing its shareholders from making their own decisions regarding our offer.”

Stern added that Nano Dimension would review its investment in Stratasys, including a possible sale of its 14.1% holding in the open market. Stern said that Nano Dimension saw “significant alternatives” in the market, and it is believed that the company is already examining other acquisition targets for its considerable reserves of cash (almost $1 billion), though not necessarily deals as large as buying Stratasys.

Stern also said that “most of the investors of Stratasys have clearly indicated to us that the potential overhang of the shareholder rights plan (‘poison pill’) makes tendering their shares too risky, in spite of our superior $25 all-cash per share offer,” and that “the Stratasys board’s stance makes it clear that the poison pill is there to stay and will continue to block shareholders from having an opportunity to tender their shares.” The poison pill rights plan stipulates that if any shareholder reaches a holding of 15%, the rest of the shareholders will be entitled to buy one more share for each share held, at a price of $0.01.

Stratasys CEO Yoav Zeif sees things quite differently. “The poison pill is one of the best decisions that the board has ever made, for the benefit of the shareholders,” he says. “The board created a situation in which it is in control of what happens and it did not put the fate of the company, its workers, and its customers, in the hands of an external party. The pill introduced order and control into the process, and that found expression in the rising bids.”

Zeif also mentions the court ruling that a poison pill strategy was not contrary to Israel law, and that while it would be naturally suspicious of such a strategy by the board of a company with no controlling interest, it found that some of Stratasys’s objections to the takeover bid were prima facie legitimate.

Zeif says that Stratasys continues to be managed in accordance with its strategy of reaching mass production of 3D printers, something it can achieve in two ways: through the 3D Systems bid, or through a share-based merger with Desktop Metal, Inc. (NYSE: DM) that it announced in May. “We believe that Desktop Metal will take Stratasys to mass production, but out of a sense of responsibility we have undertaken to examine both possibilities seriously and with an open mind,” Zeif said. He says that the critical things to Stratasys are being examined in the 3D Systems bid: the extent of synergies, growth engines, innovation, regulatory risk, and so on.

3D Systems, which estimates that a merger with Stratasys would create operational synergies worth $110 million – set Stratasys a deadline of August 4 (that is, this Friday) for completing its due diligence examination and the negotiations. 3D Systems apparently fears that Stratasys is playing for time, and wants to sign an agreement before the annual shareholders meeting next week, to avoid a situation in which the shareholders will undermine the merger.

Zeif is not fazed. “I don’t know what the pressure is, but we have talked to our shareholders, and all of them said to us ‘Examine it (the bid) well, because it’s your responsibility.’ We examined Desktop Metal for months, so should we now start to feel pressured and make mistakes? I don’t think pressure can help. We want to make sure that the board chooses the alternative with the highest value for the shareholders.”

Published by Globes, Israel business news – en.globes.co.il – on July 31, 2023.

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