We may be heading to the finish line with regards to the Stratasys (Nasdaq: SSYS) merger. After a potentially irresistible bid from Nano Dimension (Nasdaq: NNDM) to purchase Stratasys, 3D Systems (NYSE: DDD) increased its own offer to acquire its long-time competitor.
While the cash that the company is offering Stratasys shareholders remains the same, at $7.50 per share, the number of shares they will receive continues to increase, this time to 1.5444 shares of the combined company. The total ownership of Stratasys would represent 44 percent of the resulting business, along with $540 million in cash.
A Better Offer?
3D Systems estimates the value here at a total of $24.07 per Stratasys share, just seven cents above Nano’s latest offer and a 62 percent premium from the closing price of Stratasys stock one day before it announced an intent to merge with Desktop Metal (NYSE: DM). However, the company actually believes the deal to be worth $28 per share of Stratasys based on “$100 million of mutually identified and agreed upon cost synergies.”
Not only has 3D Systems sweetened the pot, but it has also signed the merger agreement in escrow. All Stratasys has to do now is pick up a pen and sign. Moreover, 3D Systems has said that it will pay all of the termination fees to Desktop Metal to cancel its merger agreement. The company outlines a number of other benefits in the deal, including the fact that the merger isn’t subject to any debt or equity financing and that the shares will be for a U.S., rather than Israeli, company, broadening the capital markets base.
Interestingly, the deal also includes the removal of “unusual terms, including a requirement for a number of existing contracts of Desktop Metal to be modified or terminated” after its proposed merger with Stratasys. What those deals are is obviously unknown, but it would be interesting to learn what they are.
3D Systems President and CEO Dr. Jeffrey Graves underscored the value of the offer, saying, “We have continued to pursue a friendly combination with Stratasys with the objective of maximizing value for the shareholders of both companies. Multiple large Stratasys shareholders have reached out to inform us that they believe a combination of 3D Systems and Stratasys is the right path forward. This feedback affirms our conviction that we are doing right by shareholders today by offering exceptional value, certainty and transparency, and agreeing to pick up the termination fee that will be payable to Desktop Metal.”
Dr. Graves continued, “We have taken every step to improve the value, certainty and transparency of our proposal and look forward to constructively engaging with the Stratasys Board so that we can mutually pursue a transaction that will change the landscape of the additive manufacturing industry for the benefit of not only investors, but also employees and customers. We are taking this decisive action now to remove any reasonable doubt whether 3D Systems’ offer is likely to result in a superior proposal. While we believe our previous offers should have constituted a superior proposal, we are confident that this enhanced offer and signed merger agreement unequivocally constitutes a superior proposal to any other before Stratasys.”
Troy Jensen, Senior Research Analyst at Lake Street Capital Markets, provided his advice regarding the Nano Dimension offer, suggesting that Stratasys shareholders take it unless 3D Systems were to improve their own proposal. Jensen downgraded the Desktop deal to “Ugly” and upgraded the Nano deal to “Bad,” selecting a merger with 3D Systems as “Good,” stating:
“While we have liked Stratasys as a standalone investment for a variety of reasons (new product cycles, valuation, profitability) and still hope they could somehow remain independent, the question now is related to size and whether scale is needed to reach healthy profitability levels. If you believe this, it seems like 3D Systems merging with Stratasys makes the most sense.”
What Happens to Nano Dimension?
If Stratasys were to agree to a merger with 3D Systems, one wonders what would occur with the other parties, Nano Dimension and Desktop Metal. Nano Dimension still has over 14 percent of Stratasys and has put forth a vote to replace the company’s entire board with its own members, including its President, Zivi Nedivi, who previously worked alongside Stratasys Chairman Dov Ofer. The company likely wouldn’t want to let go of such a valuable asset. While its ownership would become watered down after a Stratasys-3D Systems combination, it would still have enough to rock the boat.
A Financial Times report oddly quoted an unnamed banker involved in the negotiations as saying that a merger of all three businesses is what “everyone” is aligned on. Because Nano Dimension said that it would consider combining all three, there’s still the possibility that 3D Systems would take on Nano, as well, but it has not shown any intent to do so yet.
What Happens to Desktop Metal?
Desktop Metal would also need to find some form of support, possibly by selling itself to a larger company. Because the firm began its roll up strategy after its IPO, one would expect the intention was to sell when the time was right. One possibility would be a sale to a manufacturer outside of current speculation.
Because CEO Ric Fulop’s battery business, A123, was ultimately sold to Chinese car parts giant Wanxiang, he may have some connections in Asia that would be interested in Desktop. After all, the Chinese additive manufacturing (AM) industry is growing at an aggressive rate. Bright Laser Technologies, for instance, claims 30 percent annual expansion. And because the metal binder jet market is underdeveloped compared to laser powder bed fusion, it would be sensible for a Chinese firm to purchase Desktop, giving it a solid entry into the North American and European markets.
One firm we haven’t heard from in quite a while is XYZprinting, the subsidiary of Taiwanese contract manufacturer New Kinpo Group. The company sold off its selective laser sintering (SLS) division to Nexa3D, but it has always had grand ideas for the market. After conquering the desktop space almost a decade ago, it had shown off a wide variety of industrial machines before mostly abandoning them for SLS. Perhaps XYZ would be interested in acquiring Desktop Metal to rebuild its brand. It should be worth significantly less if the merger with Stratasys falls through, allowing whoever buys it to have a significant IP portfolio and more.
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