Nano Dimension Ups Offer for Stratasys: Is a 3D Systems-Stratasys-Nano Merger in the Works?

As the drama unfolds around Stratasys (Nadaq: SSYS) related to its desired merger with Desktop Metal (NYSE: DM), the 3D printing stalwart’s largest activist investor, Nano Dimension (Nasdaq: NNDM) has increased its special tender offer to Stratasys’s shareholders from $21 per share to $24 per share in cash. More than that, the company actually suggests that it would explore a merger with 3D Systems (NYSE: DDD), Stratasys’s long-time competitor.

New Offer and Leverage

The latest offer from Nano is more than 220 percent more cash than that of Stratasys competitor 3D Systems (NYSE: DDD), which last proposed a combination of $7.50 in cash and 1.3223 newly issued shares, valuing Stratasys shares at $19.53 each. Nano is seeking to purchase between 31.9% and 36.9% of the outstanding ordinary shares of Stratasys, increasing the Israeli electronics 3D printing firm’s ownership of Stratasys to between 46% and 51% of the outstanding ordinary shares. At this price, it could be too tempting for Stratasys shareholders at large to ignore.

Since its last offer, Nano Dimension has seemed to gain more leverage in its negotiations. Another activist investor, the Donerail Group, wrote a letter arguing that Stratasys was not adequately considering alternative offers to the Desktop Metal merger. Additionally, it has been made public that Stratasys is being sued by the former shareholders of a startup it acquired, Origin. Though the suit isn’t meant to disrupt a merger, it is another headache for the stalwart to deal with on the path to one.

Finally, Nano Dimension has managed to put forward a vote to replace the Stratasys Board at a shareholder meeting in August. The list of nominees that will be considered are: Yoav Stern (Nano’s Chief Executive Officer), Nick Geddes (Nano’s Chief Technology Officer), Hanan Gino (Nano’s Chief Product Officer and Head of Strategic M&A), Zeev Holtzman (a former Stratasys director), Zivi Nedivi (Nano’s President) and Tomer Pinchas (Nano’s Chief Operating Officer), and Ms. Yael Sandler (Nano’s Chief Financial Officer).

Interestingly, there is an existing link between the Chairman of the Stratasys Board of Directors, Dov Ofer, and one of the nominees, Nano’s President, Zivi Nedivi. Ofer was previously the CEO of an Israeli company called Lumenis (Apr 2007 – Apr 2012) at a time when Nedivi was the COO (Dec 2006 – Feb 2008). A one-year concurrency doesn’t necessarily mean anything except that the two worked together.

Stratasys + Nano Dimension + 3D Systems

Perhaps the most surprising part of this latest announcement is the fact that Nano Dimension says that it will “support a review of strategic alternatives to further enhance shareholder value, including through industry consolidation, possibly through a negotiated combination with 3D Systems, following the successful completion of the special tender offer.”

It is a bit less surprising if you read a recent article published by the Financial Times, which cites an anonymous banker involved in the ongoing business discussions as saying, “Everyone is aligned on one thing: that consolidation should happen. Three of the pieces [Stratasys, 3D Systems, Nano] should be together, and the question now is, ‘What is the order of operations?”

Slide courtesy of 3D Systems.

The report doesn’t say who the banker is working for or who “everyone” that is aligned with a merger between Stratasys, 3D Systems, and Nano Dimension are. To suggest that such a consolidation is inevitable is the most unexpected element in the article, as that is not what has been said in public by anyone involved.

Based on Nano’s newfound leverage, as well as the potential support shareholders, like Donerail, may have if Nano Dimension considers a merger with 3D Systems, a new scenario is beginning to share up in which Nano Dimension, Stratasys, and 3D Systems combine. This outcome would have been unexpected a couple of months ago, but now actually seems likely.

If it does come to pass, the question is what happens to Desktop Metal? Does it get left out of the plan, merge with all of the above entities, or is there some other possibility? There is speculation about the current financial state of Desktop Metal, which seemed to be counting on the merger for its continued success.

With this previous company, A123, Desktop CEO Ric Fulop left shortly after it executed its IPO. Two years later and A123 had filed for bankruptcy before selling Chinese car parts giant Wanxiang. Perhaps, we’ll see the sale of Desktop to an interested party in a similar vein. With ExOne and EnvisionTEC’s assets under its umbrella, the purchaser could ultimately build up enough to compete with a Stratasys-3D Systems-Nano combination.

Regardless of what happens, there is still the matter of Desktop’s leading competitor, Markforged, and its fate.