- Recommendation to Reject the Desktop Metal Merger Based on the Availability of a Superior Alternative to Merge with 3D Systems for Stock and Cash
- ISS Raises Serious Questions About Stratasys’ Failure to Focus on Shareholder Value
ROCK HILL, S.C., Sept. 21, 2023 (GLOBE NEWSWIRE) --
3D Systems (NYSE:DDD) (the “Company”) issued the following public letter to shareholders of Stratasys Ltd. (NASDAQ: SSYS) (“Stratasys”) after leading independent proxy advisor, Institutional Shareholder Services (“ISS”), recommended that Stratasys shareholders vote AGAINST Stratasys’ planned acquisition of Desktop Metal (NYSE: DM) ahead of its September 28, 2023 Extraordinary General Meeting of Shareholders (“EGM”) to vote on the Desktop Metal transaction.
ISS discussed its recommendation in a detailed, 9-page analysis that concluded:
[I]t is not clear that [the Desktop Metal merger] creates value for SSYS shareholders. DDD’s alternative offer to acquire [Stratasys], by contrast, presents a more convincing route to value creation for SSYS shareholders.1
The full text of 3D Systems’ letter is as follows:
Stratasys Shareholders,
You have a critical decision to make on September 28th about the future of Stratasys:
1. Vote FOR the planned all-stock merger with Desktop Metal, a transaction that would massively dilute Stratasys shareholders only to rescue an amalgamation of deteriorating additive manufacturing (“AM”) businesses rapidly cobbled together in 2021.
- Or -
2. Vote AGAINST the Desktop Metal transaction to send a clear message to the Stratasys Board of Directors to accept the superior cash and stock offer from 3D Systems. The transaction with 3D Systems would provide Stratasys shareholders with approximately $509 million of upfront cash consideration and ownership of 46% of the combined company, featuring a scaled platform with industry-leading revenues, highly attractive gross margins, positive EBITDA and attractive upside exposure to its high-growth regenerative medicine platform.
In a report to Stratasys shareholders published on September 20, 2023, leading proxy advisory firm ISS recommended that Stratasys shareholders vote AGAINST the proposed merger with Desktop Metal. In its report, ISS presented the two key questions shareholders must ask when making their choice: “Which player is best suited to drive consolidation in the struggling 3D printing industry, and which combination offers the most favorable terms for SSYS shareholders.”
ISS’ analysis found that 3D Systems’ binding offer presents Stratasys with a clear path to scale and the most favorable terms possible to create significant value for Stratasys shareholders when compared to the proposed transaction with Desktop Metal. 3D Systems supports this determination by ISS, as it emphasizes many of the points that 3D Systems has consistently raised to the market in relation to maintaining and increasing value for shareholders of the proposed combined company. 3D Systems encourages Stratasys shareholders to consider the facts when making this critical decision about the future of Stratasys.
ISS Report Brings Important Issues to Light
The ISS report highlighted several key issues for shareholders to consider:
Issue 1: 3D Systems’ Offer for Stratasys Creates Clear Value for Stratasys Shareholders, While a Transaction with Desktop Metal Does Not
“While the proposed [DM] transaction does not appear to be value-destructive, it is not clear that it creates value for SSYS shareholders. DDD's alternative offer to acquire the company, by contrast, presents a more convincing route to value creation for SSYS shareholders. Market reaction to the proposed transaction was negative; reaction to all public DDD offers has been positive, at least prior to rejection by SSYS.”
Issue 2: Stratasys’ Engagement with 3D Systems Was Highly Unusual
"Shareholders can reasonably question the unusual turn of events following SSYS' determination that DDD's proposal may result in a ‘superior proposal.’…It is reasonable for shareholders to expect that a determination that the DDD proposal constituted a superior offer could soon follow the SSYS board's statement that such an outcome could reasonably be expected. It is unusual for a "superior proposal" determination not to follow an earlier statement that a superior proposal would reasonably be expected.”
Issue 3: Stratasys’ Current Management Seems More Interested in Self Preservation Than Delivering Shareholder Value
“Criticism of DDD management and concern about post-management roles for SSYS management, while possibly justified to some extent, may suggest that unsatisfactory post-transaction roles for its management could have been a reason that SSYS did not ultimately deem DDD's proposal a superior proposal. In any case, shareholders should expect that transaction negotiations should first focus on a joint plan to create shareholder value through a transaction, and only after such plan had been agreed upon by the parties, to begin discussions about which individuals are best suited to execute such a plan.”
Altogether, ISS’ report is a meaningful rebuke of Stratasys’ management and Board’s ability to act in the best interest of its shareholders.
3D Systems’ Cash and Stock Offer is Superior to the Proposed All-Stock Desktop Metal Merger in Every Way, and the Market Agrees
Stratasys has definitively stated it believes a combination with Desktop Metal is the best path forward for Stratasys to lead mass production in the additive manufacturing industry. Yet, Stratasys refuses to compare its combination with Desktop Metal on a side-by-side basis to 3D Systems’ binding offer, as ISS did in its report.
It is clear that Stratasys does NOT want shareholders to view these two transactions as comparable, however, ISS recognizes that the two transactions should be compared head-to-head. Since the strategic rationale for each merger is essentially identical, the relative benefits to Stratasys shareholders from each deal should be all that matters.
The facts plainly show that if the Board of Stratasys truly believes in its stated strategic rationale for pursuing a transaction, then the ONLY choice that benefits shareholders is a combination with 3D Systems. It defies logic to call on shareholders to support the rationale of a Desktop Metal transaction while at the same time rejecting a 3D Systems offer.
The market sees eye-to-eye with 3D Systems on the strategic advantages of its proposal to combine with Stratasys, as ISS noted in its report. On the trading day following each proposed offer announcement from 3D Systems, Stratasys shares gained 11.3%, 6.2%, and 9.0%, respectively. Conversely, on the day of Stratasys’ announcement of a proposed Desktop Metal transaction, Stratasys shares fell 4.2%. ISS further noted the significance of these market reactions by contrasting them with general market movements in the sector on those days.
It is clear that the 3D Systems deal is superior to the Desktop Metal transaction in terms of strategic rationale and shareholder value. In support of this fact, and as a commitment to Stratasys shareholders to present a certain, superior and actionable alternative, 3D Systems has executed and deposited into escrow a binding merger agreement which remains available to be countersigned by Stratasys following termination of its merger agreement with Desktop Metal. Additionally, 3D Systems has committed to pay the full amount of any termination fees due to Desktop Metal upon the termination of the Desktop Metal merger agreement and Stratasys’ countersignature of the 3D Systems merger agreement.
Now is the time for Stratasys shareholders to send an unequivocal message to the Board to stop protecting itself and start securing real value. A vote against the Desktop Metal transaction will, as expressly recommended by ISS, send a clear message to the Stratasys Board of Directors to accept 3D Systems’ binding offer. 3D Systems’ merger agreement offers Stratasys the ability to enter into a transaction that creates unparalleled scale, significant cost synergies to enhance financial performance and opportunities to invest in long-term growth.
Vote AGAINST the Desktop Metal deal today.
Other materials related to the upcoming Stratasys shareholder vote, including 3D Systems’ latest signed merger agreement delivered to Stratasys are available at: https://investor.3dsystems.com/overview/default.aspx.
