Stratasys Concludes Merger Discussions with 3D Systems

In a series of unfolding events, 3D Systems (NYSE: DDD) and Stratasys (Nasdaq: SSYS), two giants in the additive manufacturing (AM) industry, seem to have ended discussions over a potential merger. The latest announcement from 3D Systems outlines a revised proposal to combine with Stratasys, while the latter continues to hold out for a previously-announced merger with Desktop Metal (NYSE: DM). In this case, Stratasys is not only rejecting the revised offer from 3D Systems, but has concluded negotiations.

Revised Proposal from 3D Systems

3D Systems recently announced a new offer aimed at acquiring Stratasys. The revised proposal would see each share of Stratasys converted into $7 in cash along with 46% ownership in the combined entity. This comes after a meeting between the directors of both companies on August 22, 2023, where Stratasys confirmed material cost synergies would arise from the combination but found the current valuation of 3D Systems shares inadequate for the deal. Stratasys also revealed its unwavering commitment to the Desktop Metal merger, declining further discussions with 3D Systems.

Dr. Jeffrey Graves, President and CEO of 3D Systems, expressed disappointment, stating that despite concerted efforts to find common ground, Stratasys remains unyielding. Graves accused Stratasys of “running out the clock” and going ahead with a “massively value-destructive” merger with Desktop Metal.

The updated proposal outlines a higher stock ownership for Stratasys shareholders compared to an earlier proposal. This comes in response to Stratasys’ preference for less cash and more upside participation. Moreover, 3D Systems has assured a $50 million reverse termination fee payable to Stratasys if antitrust clearances are not obtained. A $10 million retention program is also proposed for key talent retention across both companies.

Rejection by Stratasys

In response to the offer, the Stratasys Board argued that it “represent[ed] a value of $15.26 per share for Stratasys, and a premium of only 3% to the unaffected closing stock price of Stratasys ordinary shares as of May 24, 2023,” meaning that it “does not constitute a ‘Superior Proposal’ as defined in Stratasys’ merger agreement with Desktop Metal.” In turn, “the Stratasys Board has terminated discussions with 3D Systems.”

The Board listed a number of reasons as to why it was not happy with the deal, including a belief that 3D Systems was not growing at a sufficient rate. The recent news related to one of 3D Systems’ largest customers, Align Technologies, and its acquisition of AM firm Cubicure, was another issue brought up. The Stratasys Board noted:

If 3D Systems’ dental business declines due to Align shifting its sourcing, 3D Systems’ profitability could fall even further and weigh down the margins of a combined company. We believe that this would make it extremely difficult to achieve attractive long-term operating margins for a combined company.

It later went on to say:

“Revenue from Align Technology, Inc. (“Align”), which represents 23% of 3D Systems revenues, will be expected to create severe growth challenges for 3D Systems. We believe Align is likely to transition to multiple-source printing technology over time. We had previously raised concerns that Align was likely to migrate away from 3D Systems’ stereolithography technology towards DLP technology for both indirect and direct printing of appliances and other source suppliers. Align’s recently announced acquisition of Cubicure GmbH, with its strength in direct 3D printing of appliances, reaffirmed our concerns. At this stage, it is highly uncertain at what market share and margins 3D Systems’ business can operate in the future as Align ramps up its own solutions and additional alternatives continue to grow. The impact could be highly material and calls into question whether the market currently reflects the true intrinsic value of 3D Systems’ business.”

At the moment, the U.S. Department of Justice is in the process of investigating such a deal would violate antitrust laws, suggesting that an even larger combination between Stratasys and 3D Systems would be substantially more difficult. This was another concern of the Stratasys Board, which wrote: “Based on detailed joint analysis by Stratasys and 3D Systems, a combination of the two companies would likely require a lengthy and extensive regulatory review process, an extended duration to closing and significant costs to obtain the required regulatory approvals.”

Other issues included the time and difficulty associated with executing a successful integration, a plan for which 3D Systems apparently didn’t furnish.

Holding Out for Desktop Metal

Stratasys seems to be in no hurry to reconsider its plans to merge with Desktop Metal. The company had stated that it awaited “critical” due diligence from 3D Systems before making a decision. As it stands, Stratasys maintains its stance on preferring the Desktop Metal merger. The shareholders of both Desktop and Stratasys are set to vote on the merger on September 28, 2023.

As the merger saga continues to unfold, it’s become clear that there are no foregone conclusions and analysts on the topic are often proven wrong, including this author. Dr. Graves concluded his comments, saying, “We will continue to evaluate our options in completing this important transaction to transform the additive manufacturing industry.”

Our Printing Money podcast is sure to have an update, after already discussing the state of the negotiations in its latest episode. By the time of our Additive Manufacturing Strategies event February 6-8, 2024, there will surely be a more formal conclusion to the saga. Thankfully, numerous CEOs involved in the negotiations, including Stratasys CEO Yoav Zeif and Desktop Metal CEO Ric Fulop, will be presenting at the show.

Feature image courtesy of Tuan TranPham.