DDD - What To Do After Nano Dimension Offers $16.50 For Stratasys

2023-12-26 12:00:00 ET

Summary

• Stratasys stock rose 10% after receiving a takeover offer from 3D Systems, in contrast to a previous offer from Nano Dimension that had no impact on the stock price.
• 3D Systems is not at the bidding table, weakening Stratasys' bargaining position.
• Nano Dimension made an unexpected offer to purchase all outstanding shares of Stratasys for $16.50 per share in cash: Stratasys management and shareholder response to offer discussed.

In the past summer, Stratasys ( SSYS ) enjoyed a commanding position when the firm entertained two suiters. At the time, Nano Dimension ( NNDM ) increased its offer to buy SSYS stock for $24 a share. 3D Systems ( DDD ) responded by raising its offer to $24.07.

As I explained in July , Nano Dimension’s bid did not move SSYS’s stock price at all. This time, the market response is vastly different. Stratasys rose to 10%, to $14.39, at the time of writing. Stratasys is in a sharply weaker position. 3D Systems willingly added a go-shop period in its takeover offer on Sept. 29, 2023 .

Stratasys did not inform its investors of any developments since then. Furthermore, on Nov. 7, 2023, 3D Systems posted weak third-quarter results. It earned just a penny a share on a non-GAAP measure . Its revenue fell by 6.4% to $123.79 million. It blamed the weaker revenue for weakness in the dental orthodontics market. 3D will adjust to the headwinds not by pursuing Stratasys but by cutting costs. It is on track to sav e over $7 million this year .

In 2024, 3D Systems expects restructuring actions will save between $45 million to $55 million annualized. 3D Systems is focusing primarily on optimizing its operations, cutting headcount by up to 10%, rationalizing its geographic locations, and reducing costs with third-party contracts. In effect, Stratasys cannot count on this firm coming back to offer a buyout.

Nano Dimension Offers $16.50 a Share

Ahead of Nano’s offer, Stratasys adopted an ill-timed limited shareholder rights plan. The firm said that it does not intend to prevent or interfere with any attempt of an acquirer to purchase the entire firm. Still, the plan extends the expiry to Dec. 19, 2024. Stratasys created the rights plan when Nano Dimension took a 12.12% stake in the firm in 2022 . SSYS stock traded at $18.79 on July 18, 2022.

Above: stock price change since July 18, 2022.

Nano Dimension’s unexpected offer on Dec. 24, 2023, is an all-cash proposal . It wants to purchase all the outstanding shares of Stratasys that it does not currently own for $16.50 per share in cash. Importantly, Nano added “an ability to increase its price subject to due diligence.”

Nano is the largest shareholder. Although it is smaller than Stratasys with a market capitalization of $608 million, compared to Stratasys’s ~ $1 billion market cap, Nano Dimension has the liquidity. It held $872.7 million in cash and short-term investments as of Sept. 30, 2023 . At first glance, the cash on hand looks great. On closer examination, problems arise.

Stratasys shareholders benefit more than Nano Dimension investors if they accept the deal. In the balance sheet above, Nano’s cash on hand declined since Dec. 2021. Nano’s cash flow worsened since March 2022 . Although stock-based compensation fell by more than half from $10.1 million to $4.3 million and capital expenditures fell, revenue growth is stalling . In the bar charts below at an annual period, expenses are rising faster than revenue, increasing losses.

Yet most shareholders are holding SSYS at a loss. The stock is down 17% in the last five years and down by 88.8% in the last 10 years. More recently, Seeking Alpha's quant ratings warned readers to sell shares. Still, traders defied the warning and the rating shifted back to a “Hold.” More recently, the stock quant rating fell to 1.97/5.00, indicating a sell.

Proposed Acquisition Challenges

Nano Dimension used public announcements to promote its acquisition offer of Stratasys. Neither Stratasys nor its representatives approached Nano during Stratasys’ strategic alternatives assessment. This strongly suggests that Stratasys management is once again unwilling to entertain the offer.

In response to the anticipated resistance, Nano issued a public press release to announce its all-cash buyout intent. Nano said that it entered discussions with financing sources to support any transactions. It is willing to raise its offer by leveraging its balance sheet. Once again, the more the offer price rises, the more SSYS shareholders benefit while NNDM investors take on greater risks if the deal closes.

Nano may keep raising its bid but shareholders would likely hold their stock for the long term. Similarly, management will characterize the offer as opportunistic. It will cite the belief that the company will successfully navigate the slowdown in the 3D printing market. Stratasys may just as easily cut costs, similar to 3D Systems’ strategy. Management is convinced that in the longer run, its shareholders are better off rejecting the deal.

Your Takeaway

The unwillingness of Stratasys management and its shareholders to accept the deal will end today’s rally. Traders who bet that shares bottomed at $10.00 will enjoy a tidy profit today. Investors may watch today’s lift fade away if management does not respond with a counter-offer.

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