TCT Magazine
3D Systems has announced that it has submitted an enhanced proposal to the Board of Directors of Stratasys to combine the companies in a cash and stock transaction. The deal would convert each Stratasys ordinary share into $7.50 in cash and 1.3223 newly issued shares of 3D Systems common stock. 3D System’s original bid, submitted on May 30 2023, offered $7.50 in cash and 1.2507 newly issued shares per ordinary share.
The revised offer would see Stratasys shareholders owning approximately 41% of the combined company and receiving 540 million USD in cash at the time of the consummation of the transaction. The original proposal offered 40% of the combined company and also receiving the same cash amount.
3D Systems says its June 27 proposal represents ‘meaningful enhancements’ to its previous proposal submitted to the Stratasys Board on May 30. The company also says that the offer continues to be underscored by prior discussions between 3D Systems’ and Stratasys’ management teams, including a ‘diligence meeting’ in September 2022.
3D Systems says it believes its latest proposal is superior to the Stratasys combination with Desktop Metal, which was announced on May 25.
Features of 3D Systems’ June 27 proposal highlighted by the company in its press release are:
- Improved Value
- As of market close on June 26, the proposal represents a value per Stratasys share of approximately $20 based on 3D Systems’ 10-day volume-weighted average price (“VWAP”), representing a premium of 33% to the Stratasys closing share price on May 24, 2023, the last trading day prior to the announcement of the transaction with Desktop Metal.
- Inclusive of estimated cost synergies, represents a value of at least approximately $26 per Stratasys share, or an approximately 71% value uplift, inclusive of cost synergies.1
- 3D Systems would also be open to offering Stratasys shareholders the opportunity to choose their preferred consideration mix, subject to customary limits on the aggregate amount of cash and stock 3D Systems will include in the transaction.
- Improved Certainty
- Entrance into a definitive merger agreement on terms that provide Stratasys shareholders with at least as much deal certainty as the existing all-stock merger agreement with Desktop Metal.
- No CFIUS or ITAR approvals required, unlike the proposed Stratasys-Desktop Metal transaction, and continued confidence that all applicable regulatory clearances will be obtained.
3D Systems President and CEO Dr. Jeffrey Graves said: “We are resolute in pursuing a friendly combination of 3D Systems and Stratasys. It is clear to us that we have presented the Stratasys Board with a superior proposal to the proposed Desktop Metal transaction. We believe there is no better opportunity to leverage the combined strength of our complementary portfolio and create an innovative additive manufacturing leader with unmatched global scale and we are encouraged by the overwhelmingly positive response we’ve received from the market.”
The press release also included ‘strategic and financial highlights’ of the proposed 3D Systems and Stratasys combination:
- Scale Drives Leadership: Delivers immediate scale for leadership in the rapidly growing and fragmented additive manufacturing industry.
- Complementary Technology Portfolio: Combination of proven technologies with limited overlap, creating a combined portfolio better positioned to service nearly every vertical in the 3D printing market today.
- Significant Cost Synergies: Highly certain value creation potential through realization of at least $100 million in cost synergies across SG&A savings, R&D integration and COGS optimization, jointly identified by members of both companies’ management teams during due diligence sessions in September 2022, in addition to significant revenue opportunities not currently included in 3D Systems’ pro forma valuation analysis.
- Industry Leading Financial Profile: Estimated LTM combined revenue of $1.2 billion and ~$150 million in pro forma cash on the combined company balance sheet with a combined ~12% EBITDA margin2 and no debt or equity financing contemplated.
- Meaningful Growth Opportunities from Regenerative Medicine: Unmatched bioprinting leadership potential, with a clear road map for human applications, including human trials for 3D printed lungs anticipated by 2026.
Similarly to the announcement of its initial offer on May 30, 3D Systems has claimed that its takeover bid promises to deliver ‘more value to Stratasys shareholders’ than the proposed Desktop Metal merger.
Read more:
June 2 - Interview: Stratasys CEO Yoav Zeif details the strategy behind Desktop Metal merger
June 20 - 3D Systems issues update to shareholders on its proposal to acquire Stratasys
June 20 - Stratasys responds to 3D Systems takeover bid
The company said that in Stratasys’ rejection of the May 30 proposal, it turned down a transaction that 3D Systems believes promises ‘straightforward and highly achievable’ value creation. 3D Systems says it believes Stratasys is relying on ‘unfounded and unreasonable’ assumptions in order to claim its acquisition of Desktop Metal will create significant value.
3D Systems has highlighted in its statement the acquisitions that it claims are ‘unfounded and unreasonable’:
- A Sudden and Significant Shift in Projected Desktop Metal Performance: Stratasys management’s EBITDA projections for Desktop Metal unrealistically assume sudden and meteoric growth and the realization of speculative revenue synergies by Desktop Metal, a company that has not delivered on its growth prospects or any of its financial commitments since its de-SPAC “IPO” in 2020.
- Turnaround of a 28-year-old Metals Technology: Stratasys continues to tout Desktop Metal’s binder jet technology as the future of mass-produced additively manufactured metal products, but after nearly three decades, all players focused on binder jet metals have only amassed a 4% share of the total market, largely due to inferior technology. Binder jet technology continues to face significant challenges to demonstrate its viability, achieve scale for mass production and generate a profit.
- Unrealistic Cost Synergy Assumptions: Stratasys has stated the Desktop Metal transaction will result in $50 million of cost synergies. The Company does not believe that is achievable. This $50 million is incremental to the $100 million of standalone cost reductions previously announced by Desktop Metal, which equates to 60% of Desktop Metal’s 2022 operating expenses based on 3D Systems’ analysis.
- Highly Speculative Revenue Synergies: Stratasys also cites significant value creation potential through the realization of speculative revenue synergies from manufacturing and mass production. The Company believes investors should be skeptical of such revenue synergies as they are hard to establish and forecast until actually achieved.
- Highly Speculative and Unsupported Multiple Re-rating: In rejecting the 3D Systems proposal, Stratasys published a valuation analysis that predicated 65% of the potential uplift from the Desktop Metal merger on a multiple re-rating that 3D Systems believes is highly speculative and unsupported.
- An Inferior Financial Profile: The Company’s analysis shows that the combination with Desktop Metal will create a combined company with lower pro forma revenue, lower gross profit, negative EBITDA margin and negative free cash flow. 3D Systems believes Desktop Metal’s historical track record of operating losses, impairments and cash burn will introduce significant risk to Stratasys’ financial profile in the coming years.
Dr. Graves added: “As we have shown through our enhanced proposal, we remain ready and willing to deliver our collective shareholders the tremendous value creation potential offered by a combination of our two companies. We strongly urge the Stratasys Board to engage with us constructively on a friendly agreement for the benefit of our collective shareholders, employees and customers.”
Stratasys confirms receipt of revised proposal
On June 27, 8.30 EST, Stratasys confirmed it has received a revised unsolicited non-binding indicative proposal from 3D Systems to acquire the company for 7.50 USD in cash and 1.3223 newly issued shares of 3D Systems common stock per ordinary share of Stratasys.
The offer will now be reviewed by the Stratasys Board of Directors in consultation with its independent financial and legal advisors, and in accordance with its duties under applicable law and its obligations under Stratasys' merger agreement with Desktop Metal.
Stratasys has stated that its Board has not changed its unanimous approval, recommendation and declaration of advisability of the previously announced transaction with Desktop Metal, which they expect to complete in the fourth quarter of 2023. This deal, however, is still subject to customary closing conditions, the receipt of governmental and regulatory approvals, and shareholder approvals on both sides.
Stratasys has also confirmed that its shareholders do not need to take any action at this time with respect to the 3D Systems revised proposal.
