(See updates at the end of this article) Seemingly the culmination of an ongoing fight between the management of electronics 3D printing firm Nano Dimension (Nasdaq: NNDM) and its largest shareholder, Murchinson, Ltd., the former has announced a formal bid to acquire additive manufacturing (AM) stalwart Stratasys (Nasdaq: SSYS) for $1.1 billion.
Specifically, Nano Dimension made an offer of $18.00 per share in cash for the total remaining shares of Stratasys. This would be a 36 percent premium from Stratasys’ share price on the day of the offer. A combination of the two companies could be potentially beneficial for the resulting entity from a portfolio perspective. After all, Stratasys is the inventor of inkjet AM, a process on which Nano Dimension’s electronics 3D printing depends. Nano Dimension also highlights the ability to share research and development capabilities, as well as cross-market penetration, as benefits of a merger.
Yoav Stern, Chairman and Chief Executive Officer of Nano Dimension, shared, “We have great respect for Stratasys’ business, including Chief Executive Officer, Dr. Yoav Zeif, who we believe is the architect of Stratasys’ recent positive momentum. Together, Nano Dimension and Stratasys can offer an increasingly exciting set of solutions for customers while becoming better positioned to compete in the AME and AM industries. We believe this is an exceptional opportunity for all stakeholders – shareholders, customers, management, employees, and business partners – of both companies. In recent years the AM market has grown in size and accelerated remarkable technological advancement, and it is on the cusp of its next phase of development and growth. Bringing Stratasys and Nano Dimension together is about positioning both companies to succeed as a combined company and lead the industry into that next phase. With Nano Dimension’s strong culture of innovation and track record of successful merger integration, we expect to unlock significant value for all stakeholders. We look forward to continuing our discussions with Stratasys to reach a mutually acceptable transaction.”
Despite any possible synergies, however, there are a number of other considerations that shareholders would want to make before voting for such a deal. This includes the recent infighting between Nano Dimension and its largest shareholder, as well as the overall value that Stratasys has relative to its peers in the market.
Nano Dimension has been flush with about $1 billion cash, with CEO Yoav Stern saying he would make a bold acquisition, justifying the significant investment into the company. After a series of smaller purchases, some that bolstered the firm’s larger electronics 3D printing product line and some that were said to be nepotistic (specifically DeepCube), Nano Dimension attempted to execute on its plan for a large acquisition. The company purchased a total of 14.5 percent of Stratasys in 2022, causing the latter to initiate measures to prevent a hostile takeover.
Since then, and throughout the larger economic slowdown of the last year, Nano Dimension has experienced internal turmoil. Cathie Wood’s ARK fund, formerly Nano’s largest shareholder, dumped all of its stock in the company, leaving institutional investor Murchinson Ltd as holding the highest number of shares in the company. Murchinson then offered to acquire majority shares. Soon, Nano Dimension executives and Murchinson began a series of actions directed at one another, with the former putting forward shareholder proposals to give CEO Stern 10 percent control over the company and the latter proposing to remove him from leadership. As these battles occurred, Nano would not only publish press releases arguing on behalf of the company’s leadership, but also announcements related to high-profile equipment sales to military customers, intelligence agencies, and NASA.
Both Murchinson and Nano have troubled histories related to finance. 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.
Before Yoav Stern began his tenure as Nano CEO, board member Itzhak Shrem was arrested on charges of money laundering, aggravated fraud, and securities violations. Stern then became CEO in 2020, but not without his own baggage. 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.”
Given the track records of those involved on the Nano Dimension side of the deal, it wouldn’t even be surprising if all of the back-and-forth between fighting parties, and even this latest merger proposal, weren’t more about Nano’s own stock. Each shareholder action taken by Murchinson could affect the price in one way, while positive press releases could affect it in another, allowing the potential for long-term holders to profit both when the stock moves up and when it moves down, while it remains range-bound between 2 and 4 dollars.
So far, stock analysts seem to agree that the deal may not be as beneficial for Stratasys as it would be for Nano Dimension. Stifel Research Managing Director Noelle Dilts and Associate Kieran McCabe pointed out that the former’s revenue for 2022 was $651.5 million, compared to Nano’s $43 million and that the offer represented 1.46x the midpoint of Stratasys’ 2023 revenue guidance, compared to the fact that Nikon acquired SLM at 5.0x NTM revenue and Desktop Metal acquired ExOne at 5.2x forward revenues.
Troy Jensen, Senior Research Analyst at Lake Street Capital Markets, said that the offer represented a “steep discount” compared to Stratasys peers and recent acquisitions in the market, explaining, “We would point out that the $18 per share offer for Stratasys equates to an Enterprise Value/Sales multiple of 1.3x based on our 2023 revenue estimate of $645M. Industry peers such as Velo3D, Desktop Metal, and 3D Systems trade at 3.4x, 2.6x, and 2.2x, respectively. If you gave Stratasys an average multiple consistent with these three peers, the EV/S multiple would be 2.7x.”
In other words, the deal likely won’t go through. However, in the meantime, it may have caused enough volatility to Nano Dimension’s stock for some traders to benefit.
Update 3/22/23: Today, Stratasys published a statement announcing that its Board of Directors unanimously rejected the unsolicited proposal from Nano Dimension. The company noted,”Following the review, the Stratasys Board concluded that Nano’s proposal substantially undervalues the Company in light of its standalone prospects and is not in the best interests of Stratasys and its shareholders.
Update 3/29/23: Since the rejection from Stratasys, Nano Dimension has upped its offer to acquire the stalwart by about nine percent to $19.55 per share in cash. About the deal, Stern said:
“Our increased, all-cash offer demonstrates our commitment to consummating this strategic combination, which will deliver immediate and certain value to Stratasys shareholders at a compelling premium and enable us to create the preeminent leader in the rapidly growing AM market. We are prepared to move quickly to complete our due diligence and engage with Stratasys to finalize a mutually agreeable transaction. Nano Dimension believes in the quality of Stratasys management and its line-leaders, and we are therefore extending this Improved Proposal. We again invite the Stratasys’ board of directors (“Stratasys’ Board”) to engage in an open and constructive dialogue with us around a combination of our businesses. We also urge the Stratasys Board to take immediate steps to remove the company’s ‘poison pill’ and allow shareholders to voice their opinion on the proposed transaction and we are committed to giving Stratasys shareholders the power to decide on the merits of our compelling offer.”
Again, Stifel suggested that the proposal was not sufficient for Stratasys to accept, with its analysts noting, “While the revised offer is incrementally more interesting, we do not believe the transaction price of $19.55 per share fully reflects the value of Stratasys, particularly when taking a longer-term view.”
Update 4/3/2023: Once again, the Stratasys has unanimously rejected the offer from Nano Dimension, stating, ” the Stratasys Board concluded that Nano’s proposal continues to substantially undervalue Stratasys in light of its standalone prospects and is not in the best interests of Stratasys and its shareholders. The Stratasys Board and management team are confident that Stratasys’ standalone plan will create significantly greater value for its shareholders than the Nano proposal.” Needless to say, the upped proposal and rejection have introduced further volatility to Nano Dimension stock, potentially allowing traders to benefit from the extra trading activity.
Update 4/4/2023: Nano Dimension has made a final offer of $20.05 per share in cash, about $1.22 billion, which represents a 11.4% and 3% increase from the previous $18.00/share and $19.55/share offers. The 3D printing leader has until April 16 to respond. If the company does not participate in a dialogue about the offer by then, Nano Dimension may consider other options, including a special tender offer directly to Stratasys shareholders.
Update 4/13/2023: After almost two weeks of deliberation, and “and in consultation with its independent financial and legal advisors,” the Stratasys Board of Directors has unanimously rejected the most recent offer of $20.05 per share, stating that “Nano’s proposal continues to substantially undervalue Stratasys in light of its standalone prospects and is not in the best interests of Stratasys and its shareholders.”
Moreover, Stratasys noted concern with the overall state of Nano Dimension’s management, given a pending lawsuit with Murchinson. The company wrote:
“Additionally, the general composition and legitimacy of Nano’s board and management, and authority to submit and follow through on a bona fide acquisition proposal, remain unclear due to Nano’s pending court litigation with its largest shareholder, Murchinson Ltd. Murchinson requisitioned a meeting of Nano shareholders to, among other things, remove Nano CEO Mr. Yoav Stern and three other Nano directors and elect two new directors, with the goal of “reporting out to shareholders within 60 days of new directors being seated a cohesive strategy for enhancing value.” Murchinson announced that the Nano shareholder meeting was held on March 20, 2023, and that all of the changes regarding the composition of Nano’s board, including the removal of Mr. Stern, were approved by 92% of the Nano shares voting. Murchinson, Nano and Mr. Stern are now involved in litigation as to who in fact is currently leading Nano. Thus, Nano’s revised proposal, in addition to substantially undervaluing Stratasys, is subject to significant uncertainty as to the composition, leadership and decision-making authority of Nano’s board.”
The news comes after Nano CEO Yoav Stern and the management team would go to Stratasys shareholders directly to tender an offer. It’s likely, then, that Stern will execute this strategy in an attempt to wrest control from the Stratasys board.
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