Management Drama Continues at Electronics 3D Printing Company Nano Dimension

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See updates to this story at the end of the article.

According to a report from Israeli site CTech, leadership at Nano Dimension (Nasdaq: NNDM) may be fighting for control over the electronics 3D printing company. CEO Yoav Stern has requested his stock options be repriced at the upcoming shareholders’ meeting on December 13. Doing so would give the executive the ability to become the largest shareholder, effectively giving him majority control over the firm. Nano’s leading proxy advisers, ISS and Glass Lewis, have recommended that shareholders vote against Stern’s request.

ISS commented, “The new terms of the options for the CEO raise substantial doubts about the correct conduct of companies in such situations,”

“This is excessive compensation with a vesting period that is too short,” Glass Lewis said. “The wording according to which Stern is ‘risking his fortune’ in order to exercise the options is misleading. Stern will have to pay $50,000 for the right to exercise a package of options with a current value of $50 million. The shareholders should also be bothered by the acceleration clause in the vesting of Stern’s options in the event of a change in control of the company.”

As it stands, the Israeli tech company is valued at $633 million, despite boasting cash of $1.2 billion. If the vote passes, the exercise price would drop nearly one-third from $6.16 per share to $2.46, roughly the price at which the stock is currently trading. The vote would also allow Stern to decide his options in installments throughout the coming year and, if executed, allow him to take over a total of a light 10 percent of Nano Dimension, with other shareholders maintaining less than five percent each.

Nano Dimension DragonFly IV 3D-printer. Image courtesy of Nano Dimension.

Stern also requested to cancel the indemnity ceiling for Nano’s directors and managers, instead of placing a ceiling based on a percentage of the company’s equity. Additionally, the company will vote to increase share capital from 500 million to 800 million shares, even though the company already has 200 million unissued shares.

Nano Dimension’s Acquisitions and Non-acquisitions

The large cash on hand was the result of a fundraising effort in which Stern claimed he would manage the acquisition of a large firm in the 3D printing industry. However, Nano Dimension has only managed several smaller acquisitions totaling $80 million, all of which have failed to drive revenues significantly. In the first half of 2022, the company’s revenues were just $21 million, unable to cover losses of $73 million. Stern then managed to purchase 12 percent of the Israeli-American additive manufacturing (AM) stalwart Stratasys. Stratasys, in turn, adopted measures to prevent a hostile takeover by Nano Dimension and the electronics 3D printing company failed to make the big moves that Stern had apparently promised. 

Rather than take over a leading AM company, however, Nano instead acquired several small startups. CTech, in particular, questioned the purchase of artificial intelligence developer DeepCube, due to the fact that Stern previously served as CEO of DVTEL, a firm previously started by DeepCube founder Yaron Eitan. CTech writes:

“Stern, who was appointed CEO of Nano Dimension in January 2020, brought Eitan to the board in February of that year. Six months later, he provided Eitan with a reward that resembles his own – for a payment of $150,000, Eitan can receive a package of 1.5 million options at an exercise price of $2.25 for three years. In fact, these options are also already in the money.” The article continues, “In April 2021, Nano Dimension purchased DeepCube, which Eitan founded with Dr. Eli David, who was also a director at Nano Dimension at the time it set out to purchase the company in a deal which included $40 million in cash and another $30 million in shares. Until the purchase, DeepCube was a startup in its infancy which completed only one fundraising round of about $8 million. The company still had no product, but only technology in the field of artificial intelligence and an unclear connection to 3D printers that Nano apparently specializes in. Beyond the cash, Nano’s board of directors, which included Eitan and David, also set up a protection mechanism against the decline of Nano’s stock, so that even after it crashed they still received compensation for the equity part of the deal as well. David, by the way, left the board of directors shortly after the transaction and today he only serves as VP of Technologies for DeepCube.”

The article adds, “In fact, since Stern also began serving as chairman of the board in March 2021, he has added a series of new directors, some of whom are related to him or Eitan. Today, the directors appointed during Stern’s tenure make up more than half of the board. The last to join, for example, was Igal Rotem. Eitan invested in Rotem’s Credorax company, which Rotem founded and sold this year. Shortly before that, Saul Simon, a high-tech entrepreneur who used to be a pilot in the Air Force like Stern and Zivi Nedivi, joined the board, with Nedivi serving as the president of Nano Dimension for the past few years.”

Nano Dimension’s Leadership History

Both Nano Dimension and Stern have not been without their own histories of drama. Two members of the board of the company stepped down in 2017, while former 3D Systems CEO Avi Reichental was added as co-chairman, alongside Itzhak Shrem. While Reichental was made to leave 3D Systems amid a financial downturn, Shrem was ultimately arrested on charges of money laundering, aggravated fraud, and securities violations. Reichental resigned from the board in 2019 before Stern became CEO in 2020. 

For his part, Stern was accused of extortion while serving as CEO at a defense company called Magal Security Systems. He only maintained the position for a short time, from 2009 to 2010, and was removed at the behest of board chairman Yaakov Perry. According to CTech, Magal shareholders filed a complaint to the U.S. Securities Exchange Commission, writing:

“During his time, Stern fired or caused the firing of many senior employees and caused almost irreversible damage to the morale of the other employees. During his time at the company, the employees were kept in a hostile atmosphere as a result of his management style. When Stern joined Magal, he made it clear to some of the employees that his intention was to lead a takeover of the company through the purchase of shares at a low price by the executives.” 

Perry was able to keep his position as chairman, but the company was ultimately sold. What the Israeli tech site reports now may lead to a similar struggle at an AM business that has already suffered from shaky management.

Layoffs

According to sources close to the company, who requested anonymity for fear of reprisal, the company eliminated more than a dozen employees, mostly in Florida, in July 2022. The layoffs occurred under the auspices that Nano Dimension was shifting its U.S. efforts to Boston. However, as the Florida office was shut down, the job security promised to Florida staff was not guaranteed. Meanwhile, the firm spent hundreds of thousands of dollars on a retrofit to the Boston location because the floors couldn’t support the weight of the machines. The decision to let go of these employees resulted in an exodus by a number of others. 

While Stern’s track record would suggest that Nano Dimension could face a fate similar to Magal, it should be kept in mind that it is exactly these sorts of developments that contribute to the larger business environment. Regardless of whether or not Stern is able to wrest majority control over the electronics 3D printing firm, the very possibility that he might could impact the value of its stock. We are currently in the midst of a business cycle in which companies that aren’t able to perform at a certain level become ripe for acquisition. By placing someone with a history like Stern’s in charge of Nano Dimension, the pieces were established to set this narrative in motion. In turn, we may expect a larger company to come in and purchase the firm at a discounted price.

Nano Dimension’s Prospects

 In fact, investment management firm Murchinson Ltd, Nano Dimension’s current top shareholder, made a non-binding offer to buy the company in September for $4 a share or roughly $995 million. Murchinson, its principal Marc Bistricer, and trader Paul Zogala settled with the SEC for violating short sale regulations. The SEC charged the firm with “making erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund’s brokers, causing those brokers to mismark the hedge funds’ sales as ‘long'” from June 2016 through October 2017. 

Murchinson became the top investor only after ARK Investment Management sold all of its ARKQ shares in the company starting in September, going from holding almost 10 million shares in October 2021 to zero of October 4, 2022. This came after the group’s principal Cathy Woods promoted it in the media in 2021. 

While the totality of questionable activities on the part of the company’s management raises questions as to whether or not Nano Dimension is much more than a stock market scheme, it really does manufacture electronics 3D printers. Acquisitions like Nanofabrica and Essemetec also make actual goods. With that in mind, there are a lot of valuable intellectual property and manufacturing operations there, not to mention talented employees. That means that it could be a valuable asset and hub for exciting technology. If a more adept owner comes along—such as Nikon, HP, GE, or Stratasys—it could be salvaged.

There are other stories regarding Nano Dimension’s practices that would need to be further verified before publication. If you have further information about the company’s internal operations, please reach out to michael@3dprint.com.

Update 12/14/2022: Nano Dimension shareholders have since voted on the issues discussed in this article. According to a Form 6-K filed to the U.S. Securities and Exchange Commission (SEC), the Special General Meeting of Shareholders considered the following proposals:

Proposal No. 1: To increase the Company’s registered share capital and to cancel its nominal value per share and to amend and restate the Company’s Amended and Restated Articles of Association to reflect the same;

Proposal No. 2: To approve an update to the form of the Company’s Indemnification Agreement with its directors and officers and to amend and restate the Company’s Amended and Restated Articles of Association to reflect the same; and

Proposal No. 3: To approve amended and restated Series B Warrants in consideration of an additional investment by Mr. Yoav Stern, the Company’s Chief Executive Officer and Chairman of the Board, in a warrant transaction.

The shareholders voted against all three proposals, but only after a bit of infighting:

“The Meeting was adjourned for an hour and a half due to lack of quorum. At the adjourned Meeting, a quorum was present and the shareholders of the Company voted against all agenda items as originally proposed.”

Update 12/15/22: On the day after the vote, Nano Dimension’s distributed a press release from the perspective of its management (presumably Stern) suggesting that a”smear campaign” was launched ahead of the vote by “a small entity, which itself has a history of trouble with regulators and authorities in the USA,” presumably Murchinson. The letter continues:

“As a next step in the entity’s campaign, they filed for an injunction to hold up the Meeting; thus, holding up efforts for all shareholders to rightly express their own views in a proper governance forum. The Israeli district court, where this injunction effort was launched, quickly dismissed the motion. 

“Naturally, as a shareholder minded company, the results of the vote will be respected. Furthermore, Nano Dimension will continue to execute on its vision through its M&A initiatives, R&D programs, and business development plans. These efforts have already yielded results, and we expect this to be more of the case in 2023 as we foresee notable opportunities in the industry that will enhance and expand Nano Dimension business – with strong and robust capital and other assets – and therefore benefit its shareholders.”

What seems to have happened is that, once ARK pulled its investments, the shareholders were left with a power vacuum. Now, we’re seeing the firm’s management battle with an investing body for control.

Update 1/31/23: On January 30, 2023, it was announced that the Board of Directors at Nano Dimension had adopted a shareholders rights plan that would expire January 27, 2024. According to the press release, the plan is “designed to reduce the likelihood that any entity, person or group would gain control of, or significant influence over Nano Dimension.” Specifically, the plan includes the following:

Nano Dimension will issue one special purchase right for every one ADS outstanding at the close of business on February 6, 2023. Each right will allow its holder to purchase from Nano Dimension one-half of one (0.5) ADS, at a purchase price of $0.01 per ADS, once the rights become exercisable. The rights would become exercisable only if an entity, person or group acquires beneficial ownership of 10% or more of Nano Dimension’s outstanding ordinary shares in a transaction not approved by the Company’s Board.

The following morning, the company put out a follow-up announcement, presumably in response to the first, that highlights the qualities of Nano Dimension’s executive management, the ability of that management to grow the company’s revenues significantly, and sharply and repeatedly criticizes its majority investor Murchinson and its manager Marc Bistricer. The letter describes the SEC charges against Muchinson for short selling practices that resulted in an $8 million fine and accuses the firm of attempting to profit off of short sales of Nano Dimension stock. It states:

“The claim of the managers of Murchinson, who were investigated by the SEC and admitted having violated the law, against the managers of Nano Dimension is comparable to an opinion of a bank robber about the way the bank is operated and managed. (emphasis in the original).”

On the surface, this latest development suggests that the two parties, Nano Dimension management and Murchinson, are continuing to battle over control of the company. Of course, given the murky world of finance, there’s always the possibility that both parties have a shared angle related to the stock price and the value of the company.

3DPrint.com and SmarTech Analysis are hosting Additive Manufacturing Strategies in New York City on February 7-9, 2023. Register for the event here to learn from and network with the most exciting companies and individuals in AM.

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