We’ve learned quite a bit more about the “surprise” offer from 3D Systems to merge with Stratasys.
I put “surprise” in quotes because it was a surprise to most of us. But in fact, new documents reveal that the two companies have been having discussions about a merger concept for several years behind the scenes.
But let’s back up a bit. Here’s how we got here:
- Nano Dimension, a smaller company with a pile of cash, has made repeated offers to take over Stratasys
- Stratasys has rejected all offers from Nano Dimension
- Stratasys and Desktop Metal announced a plan to merge the two companies together
- 3D Systems announced an offer to merge with Stratasys
This is just the public, official announcements from the companies. I cannot imagine the contortions and discussions being held behind the scenes regarding this highly complex corporate scenario.
Now, the latest developments come from Stratasys and 3D Systems.
The Stratasys board of directors and management issued a statement saying they’ve unanimously determined the 3D Systems proposal is not better than their earlier plan to merge with Desktop Metal. It seems they wish to proceed with Desktop Metal rather than 3D Systems — or at least they imply the 3D Systems offer is insufficient.
Days later, 3D Systems “affirmed commitment” to their first merger proposal. They believe it’s a good deal, as they foresee something near US$100M per year in synergistic savings. That means reductions in expenses. For example, you don’t need two CFOs, two purchasing departments, etc. Consolidating the backoffice functions will certainly yield significant savings. In addition, the merged companies would leverage higher economies of scale on purchases of materials and parts. Finally, 3D Systems describes a world-leading joint sales and distribution network.
Evidently 3D Systems was unhappy with the rejection and decided to publish the entire contents of their offer letter to Stratasys for all to see. They believe shareholders will read this material and realize that their offer is superior.
The letter revealed that the two companies have had teams discussing a merger for quite some time, and have gone through the financial data in some detail — this is where the forecast of US$100M in savings was generated.
While the 3D Systems offer letter is quite pleasant in tone, their latest release includes this quote from CEO Jeffery Graves:
“It is our view that shareholders want actionable, believable value creation plans and are already skeptical of the wildly optimistic management projections underpinning Stratasys’ presentation to investors today. Our combination is founded on straightforward benefits of scale with clear cost synergy estimates that have been jointly reviewed, quickly actionable, and plainly more valuable to shareholders.”
We have one company saying their proposal is good, while the other disagrees. Which company is correct?
My thinking on this question carries us into the future. At the present time, the value of all of these companies is quite depressed from previous highs, sometimes dramatically so. It is not unreasonable to believe that company valuations will eventually rise higher over time to recover those losses.
That means today might be a good time to buy: prices are low. This is most likely why 3D Systems and Nano Dimension are after Stratasys.
But as the years unfold, the value of Stratasys will inevitably rise, particularly so if aligned with Desktop Metal. This means Stratasys would be more difficult to acquire or merge with later as they would be a larger fish to catch. Translation: a future merger would be of much larger value to Stratasys.
With that logic, I can see why Stratasys is rejecting the current offers.
The question now is whether 3D Systems will up their offer to bring forward some of that future value, as their current offer is based on today’s synergies, not tomorrow’s value.