3D-printing takeover battle misses third dimension

Nano Dimension

10/07/2023 18:05

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Robert Cyran
       NEW YORK, July 10 (Reuters Breakingviews) - The 3D
printing industry is engaged in a complicated game of
four-dimensional takeover chess. Stratasys  SSYS.O  for now
prefers a merger with peer Desktop Metal  DM.N , but a sweetened
bid from Nano Dimension  2N5By.F  complicates matters. A simpler
two-dimensional financial analysis suggests a snubbed offer from
3D Systems  DDD.N  may wind up the best option. 
    A decade ago, falling prices for the compact technology able
to cheaply construct car parts, eyeglass frames and other
objects from digital files created Wall Street buzz. The
manufacturing hype outpaced any ability to generate profit,
however. Cost-cutting and consolidation are now the focus.
    Nano kicked things off in early March by offering to buy the
roughly 86% of Stratasys it didn’t already own for $18 a share,
or $1.1 billion, a 36% premium to where the stock had been
trading. Two months later, Stratasys unveiled a $1.8 billion
all-stock union with Desktop Metal. 3D Systems followed with a
cash-and-stock proposal. Nano’s latest offer is a third higher,
but only to boost its stake to 51%. 
    The Nano deal looks flaky. The company has been embroiled in
its own fight against dissidents. Its $770 million market value
also is lower than its nearly $1 billion of net cash, which
suggests its Stratasys entreaty isn’t impressing investors.
Desktop Metal makes a more promising Stratasys partner, partly
because it caters to factory floors. There are also some $50
million a year of anticipated cost savings from the transaction
and another $50 million in revenue uplift. Even so, Desktop
Metal has disappointed before. Its 2023 sales forecast is much
lower than it was when it went public through a shell company a
few years ago. 
    Stratasys shareholders currently have a choice between two
slates of directors at next month’s annual meeting. The
company’s nominees favor the Desktop Metal deal, while Nano’s
back the alternative transaction. 
    Being largely overlooked is 3D’s plan, whose Stratasys offer
is now worth about $21 a share, but is for the whole company. In
addition, 3D boss Jeff Graves promises $100 million of synergies
entirely derived from slashing expenses, which are far easier to
deliver than ones reliant on boosting sales. Taxed and
capitalized, they’re worth around $800 million, meaning 3D
Systems could go as high as $25 a share without destroying
value, according to Breakingviews calculations.
     3D’s cost cutting would be welcome; all the companies
involved are unprofitable. In this multi-dimensional M&A battle,
it would be useful to simplify the model and focus on the
combination that can deliver the most.
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    CONTEXT NEWS 
    Nano Dimension said on June 10 that it had increased its
tender offer to buy up to 51% of rival 3D printing company
Stratasys to $24 a share, adding that it supports exploring
industry consolidation, including a potential combination with
3D Systems.
    Stratasys said on July 4 that its shareholders would have
their choice of two competing slates of directors at its annual
meeting on Aug. 8. It has nominated eight existing members of
the board while Nano Dimension, which owns about 14% of
Stratasys and initially offered to buy Stratasys in early March,
put forward a slate of seven directors. 
    On May 25, Stratasys agreed to combine with Desktop Metal in
an all-stock deal valued at $1.8 billion. Desktop Metal’s
shareholders would receive 0.123 shares of Stratasys and own
about 40% of the combined company.
        On the same day, 3D Systems offered to buy Stratasys for
$7.50 a share in cash and 1.3223 3D Systems shares for each
Stratasys share. The value of that offer at the close of trading
on July 5 was $20.05 per Stratasys share. 
    Stratasys, whose shares closed at $17.37 on July 7, rejected
Nano’s earlier offer and said 3D Systems’ unsolicited bid
undervalues the company and does not constitute a superior offer
to the Desktop Metal deal. 

 (Editing by Jeffrey Goldfarb and Sharon Lam)
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