Acquisitions, Mergers & PartnershipsAM Industry

2.3% Stratasys shareholder urges Board to consider 3D Systems’ offer

The Donerail Group delivers a letter to the Stratasys Board of Directors expressing skepticism on Desktop Metal acquisition

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In the latest – not entirely unexpected – twist to the Stratasys’ merger / unsolicited takeover offer saga, a large shareholder of Stratasys, the Donerail Group, wrote a letter to the company’s Board of Directors urging them to consider 3D Systems’ latest offer. The Donerail Group, which owns 2.3% of Stratasys, also expressed skepticism regarding the strategic and financial merits of the pending acquisition of Desktop Metal.

2.3% Stratasys shareholder the Donerail Group delivers a letter to the Board of Directors expressing skepticism on Desktop Metal acquisition
3D printed garments inside Stratasys HQ in Rehovot, Israel

For those unfamiliar with this entity, the Donerail Group, which was founded in 2020 in Los Angeles, describes itself as an “investment adviser that employs a value-oriented, activist investment lens focusing on special situations and event-driven investments. The company combines a research-driven approach with a deep breadth of strategic relationships to focus on complex situations. Shareholder and management engagement is considered a cornerstone of the company’s strategy, as it endeavors to act as a trusted partner bringing strategic solutions to unlock value in each of its investments. Its stated mission is “to create long-term value for our investors through the careful stewardship of their capital.”

This approach now brings the Donerail Group to express “serious concern over the Stratasys Board’s apparent refusal to negotiate a superior proposal received from any potential suitor prior to finalizing the questionable Desktop Metal transaction” and to encourage the Board “to make every effort to properly respond to this superior proposal and negotiate the best possible deal for its shareholders.

The text of Donerail’s letter to the Board follows:

To the Board of Directors,

As you are aware, The Donerail Group LP (together with its affiliates, “Donerail”, or “we”) is a large shareholder of Stratasys Ltd. (the “Company”, “Stratasys”, or “SSYS”) with a beneficial ownership interest of approximately 2.3% of the Company’s outstanding shares.

As you are also aware, since our meeting last week with the Stratasys CEO, Dr. Yoav Zeif, we have attempted on multiple occasions to call a private meeting with the members of the Board of Directors (the “Board”) responsible for strategic initiatives to highlight our views of value of the various strategic options. Our meeting requests have been categorically ignored, leading us to release this letter publicly.

To be sure, we have appreciated the meetings with members of the Stratasys management team in recent weeks, but we have found that our most recent meeting, alongside certain details disclosed recently in regulatory filings, have introduced a heightened level of concern regarding the Company’s governance and strategic direction.

Most specifically, we have concerns regarding the Board’s clear, unconscionable, and continued refusal to engage with bona fide suitors regarding a sale of the Company over the past two years. Such fiduciary negligence needs to be rectified immediately.

As the Company disclosed in a June 20th regulatory filing, since January of 2021, Stratasys has been on the receiving end of at least 12 unsolicited acquisition proposals from at least 3 separate bona fide acquirers. We also believe that the Board would receive additional acquisition interest if it would indicate a willingness to seriously entertain it. Implied acquisition premiums of the disclosed 12 unsolicited acquisition proposals have been attractive, with one proposal exceeding over 60% from the trading price at the time of the offer. In 11 of those 12 unsolicited acquisition proposals, Stratasys rejected the unsolicited proposal without engagement. Such blind and inconceivable rejections have cost Stratasys shareholders dearly.

In the one unsolicited acquisition offer that was made of which the Board did, in fact, engage upon – the March 2023 Desktop Metal Incorporated (“Desktop Metal”) proposal – the premium offered was the lowest of all other unsolicited offers and subsequently ended not in a sale of SSYS, but rather, what has turned into a highly risky bet-the-company merger for Stratasys.

To say the least, the Desktop Metal deal has not been well-received by the investment community. Stratasys shares dropped 10% immediately upon the news1, and the investment analyst community immediately came out criticizing the transaction due to the fact that “SSYS would be absorbing an unprofitable business (DM) that has dramatically missed nearly all of its financial forecasts” and explicitly highlighting disbelief regarding the 2024-26 financial forecasts2.

In our June 21st meeting with Dr. Zeif, we asked pointed questions regarding the historic desire of SSYS to rebuff willing bidders at objectively attractive prices, and Dr. Zeif confirmed to us that notwithstanding historic actions, the Board was now “working for shareholders”, that he “understood our views”, and that the Board would “do the right thing” for shareholders.

Tuesday morning, we watched with great interest as two separate, attractive, unsolicited offers were presented to Stratasys shareholders – one of which objectively serves as a highly attractive alternative for SSYS shareholders to the Desktop Metal proposed transaction. In fact, we believed that the prior 3D Systems Corporation’s (“3D Systems”) offer – and their likely ability to increase their bid – was sufficiently compelling to warrant engagement with them vis-à-vis the Desktop Metal proposed transaction’s value offered and precisely the valuation work that we had endeavored to highlight to the Board in a meeting – a request that was, again, rejected. As it stands today, 3D Systems’ revised, increased proposal offers SSYS shareholders a combination with a highly complementary strategic party in a cash and stock deal valuing Stratasys at an over 27% premium to Monday’s closing trading price. We do not believe that the Board can reject the obvious any longer: a 3D Systems transaction is significantly more compelling than the current alternatives and warrants immediate engagement.

We applaud the Board for its immediate commitment to review the revised merger proposal from 3D Systems, as it announced Tuesday, and we encourage a swift review ahead of engaging directly with 3D Systems to optimize its offer to Stratasys shareholders.

Critically, as we discussed at length with Dr. Zeif on June 21st, the Board was wise to include language in its Desktop Metal merger agreement that allows the Board to engage with an unsolicited suitor in the event that a proposal is made that is “reasonably likely to lead to” a superior offer. 3D Systems’ renewed proposal clearly marks such a proposal, and we would encourage the Board to act in its capacity as fiduciaries to negotiate and announce a transaction.

In this instance, we encourage the Board to follow its commitment to “work for shareholders” and terminate the Desktop Metal deal in favor of a more attractive deal.

After 2 years of rebuffing willing suitors, we implore the Board to be especially mindful of its fiduciary obligations to shareholders, rather than have an inflated view of an execution story wrought with challenges. The correct answer is clear in our view.

We hope that no further action beyond this letter will be needed and fully expect the Board to be properly advised on how to proceed. We are standing by and open for communication at any time with the Board, management team, or any shareholder.

The letter is signed by William Z. Wyatt, Managing Partner, The Donerail Group LP

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Davide Sher

Since 2002, Davide has built up extensive experience as a technology journalist, market analyst and consultant for the additive manufacturing industry. Born in Milan, Italy, he spent 12 years in the United States, where he completed his studies at SUNY USB. As a journalist covering the tech and videogame industry for over 10 years, he began covering the AM industry in 2013, first as an international journalist and subsequently as a market analyst, focusing on the additive manufacturing industry and relative vertical markets. In 2016 he co-founded London-based VoxelMatters. Today the company publishes the leading news and insights websites VoxelMatters.com and Replicatore.it, as well as VoxelMatters Directory, the largest global directory of companies in the additive manufacturing industry.

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