3D Systems moves into pole position in battle to control Stratasys with $2 billion deal
3D Systems moves into pole position in battle to control Stratasys with $2 billion deal
Stratasys says 3D Systems' new offer could be superior to the $1.8 billion all-stock union it agreed with Desktop Metal two months ago
The 3D printing industry is engaged in a messy game of four-dimensional takeover chess which only keeps getting more complicated. Stratasys said on Monday that it intends to engage in discussions with 3D Systems regarding its latest proposal. 3D Systems offered last week to acquire Stratasys through a deal which would see each Stratasys shares converted into $7.50 in cash and 1.5444 shares of the combined company. This would give Stratasys shareholders approximately 44% of the shares of the combined company in addition to around $540 million of cash. The deal values the combined company at approximately $2 billion.
Until last week, Stratasys seemed to prefer a merger with peer Desktop Metal, even though a sweetened bid from Nano Dimension complicated matters.
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.
3D’s plan may have been previously overlooked, but the company’s 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 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.
