Following its unsuccessful attempts to engage with the Company’s Board of Directors (the “Board”) and management, Murchinson Ltd. has issued an open letter to its fellow shareholders.
Nano Dimension imposed a Shareholders’ Rights Plan late last month, which has been in effect from February 6, 2023, to January 27, 2024. This comes at the heels of a few months after a reported corporate takeover by Murchinson, the company’s largest shareholder, holding approximately 5% of its outstanding shares.
This was the recent development in a tense handful of months for a firm that has procured the likes of NanoFabrica (Revenue: $10.5 million), Admatec/Formatec (Revenue: $5.3 million), Essemtec (Revenue: $29.7 million), Global Inkjet Systems (Revenue: $10 million), and DeepCube (not generating revenue at the time of acquisition), while also acquiring over 12% of Stratasys’ outstanding shares.
What exactly caused this power struggle?
Although the firm sought an inorganic growth strategy, its share value declined. This sparked some dissatisfaction among the company’s major shareholders, who insisted on a special meeting on January 22, 2023, to allow shareholders to cast a ballot on proposed resolutions to eliminate four directors and assign two independent directors. According to Nano Dimension’s shareholder rights plan, the firm believes Murchinson may use this conference to procure greater control over the company. Murchinson, on the other hand, refutes this in a letter to Nano Dimension’s shareholders.
Murchinson, a global investment company founded in 2012, holds 5.1% of Nano Dimension’s outstanding shares, surpassing any other singular entity. The investment firm is dissatisfied with Nano Dimension’s efficiency under Yoav Stern, who has been CEO since January 2020 and Chairman since 2021. Murchinson claims that Mr. Stern’s chairmanship has been described as “poor capital allocation and unfortunate corporate governance.”
Stern’s tenure witnessed Nano Dimension making multiple acquisitions, all but one of which generated revenue, which Murchinson asserts was used to disguise Nano Dimension’s underachievement. Last year, the company also purchased 12.12% of Stratasys‘ outstanding ordinary shares, citing the ‘strategic upside’ of owning a stake in Nano Dimension.
Murchinson notes in its letter to the shareholders that Nano Dimension’s share value has ‘lagged its only self-reported peer Stratasys by 27% over the past two years.’ Murchinson also claims that the firm’s stock trades at a ‘substantial rebate’ to its more than $1 billion in cash, which ‘reflects the market’s worry that Mr. Stern will proceed to decimate value.’ Consequently, Murchinson believes that shareholders are entitled to vote on the re-establishment of the Nano Dimension Board.
Murchinson’s letter to its shareholders
Murchinson is the largest shareholder of Nano Dimension. After months of disappointing engagement with Chairman and Chief Executive Officer Yoav Stern, we sent a letter to Nano Dimension’s Board on January 22, 2023, to demand that it promptly convene a special meeting to provide shareholders the opportunity to vote on proposed resolutions that include the removal of four current directors (including Mr. Stern) and the appointment of two new independent directors. We took this step because shareholders deserve the right to vote on the reconstitution of the Board following a decline of more than 77% in the Company’s share price during Mr. Stern’s chairmanship. We worked with a leading U.S. law firm and a leading Israeli law firm to ensure that all aspects of our demand and related materials complied with all legal requirements, even though we suspected the Stern-controlled Board would react by employing entrenchment maneuvers to avoid being held accountable by shareholders.
As predicted, instead of respecting our clear right under local law to convene a special meeting or trying to collaborate with us on Board refreshment, Mr. Stern and his allies have rejected our demand and immediately embarked on a scorched earth campaign to entrench themselves at all costs. The Stern-controlled Board appears to have abandoned any semblance of appropriate corporate etiquette and sound governance by issuing a series of false and misleading press releases that attack us and misrepresent our intentions. It is clear to us that Mr. Stern is causing the Company to make these unsubstantiated claims in order to distract from his record of presiding over massive value destruction throughout his tenure.
With this context in mind, the urgent need for change at Nano Dimension is as much about future risks as past underperformance. We believe that Mr. Stern, who has a dubious history as a capital allocator, and his seemingly hand-picked Board cannot be trusted to steward the approximately $1 billion in cash on the Company’s balance sheet. We fear Mr. Stern could continue his value-destructive acquisition spree and continue burning excessive cash on cronyism and questionable initiatives. In light of investor unrest, we also fear Mr. Stern may try to dilute shareholders in order to place shares in friendly hands.
Despite the roadblocks being put in place by Nano Dimension, we will take all necessary steps to provide shareholders the opportunity to vote on our proposals to reconstitute the Board at a special meeting. We firmly believe that a meaningfully refreshed Board with a responsible capital allocation philosophy will be able to optimize Nano Dimension’s overcapitalized balance sheet and explore a full range of strategic options to unlock tremendous value for all of the Company’s shareholders.
WHY CHANGE IS NEEDED NOW
Most of the Company’s staggered Board, including Mr. Stern, were appointed and have never stood for election due to apparent manipulations of the director class system. It is equally troubling that Mr. Stern’s service agreement includes a highly unusual provision that gives him the authority to approve directors or receive compensation from the Company. Unfortunately for shareholders, Mr. Stern’s chairmanship has been defined by significant share price declines, poor capital allocation, and terrible corporate governance. We believe it is time to reshape the Board by removing interconnected directors who have seemingly been beholden to Mr. Stern at the expense of shareholders. In our view, it is time to add truly independent directors who are committed to maximizing value for all shareholders.
Since Mr. Stern was appointed to the Board and named Chairman nearly two years ago, Nano Dimension’s shares are down 77.7%. Over the same period, the Company’s share price has lagged its only self-reported peer, Stratasys (Nasdaq: SSYS), by 27%. Perhaps most concerning, the Company’s shares trade at a substantial discount to its more than $1 billion cash position. In our view, this disconnect reflects the market’s fear that Mr. Stern will continue to destroy value.
At Mr. Stern’s direction, Nano Dimension has made a series of acquisitions. With the exception of one (DeepCube Ltd.), each of these targets were revenue-generating companies. We believe that Mr. Stern has used these acquisitions to mask the underperformance of the Company. Tellingly, on January 24, 2023, Nano Dimension reported preliminary and unaudited 2022 revenue of $43.6 million, which Mr. Stern labeled the highest annual revenue in the Company’s history. However, based on our analysis, the unaudited 2022 revenue number actually represents a loss of value. If these companies had never been bought by Nano Dimension, their combined pre-acquisition revenue added to the Company’s organic revenue would have been roughly $10 million higher. It appears Mr. Stern has spent shareholder capital on businesses that have cumulatively actually lost revenue once part of the Company.
Unfortunately, the Board’s apparent failure to properly oversee management is simply one symptom of the Company’s deficient corporate governance. Instead of listing the myriad ways in which Nano Dimension’s governance has failed shareholders, it is worth simply considering that since the submission of our letter to convene a special meeting, the Board has, in a matter of days, responded by:
- Trying to smear its largest shareholder – Nano Dimension has issued three press releases filled with false, misleading, and inflammatory attacks on Murchinson. This behavior reflects Mr. Stern and the Board’s disregard for genuine shareholder engagement and their willingness to go to desperate lengths to entrench themselves. We hope that you, our fellow shareholders, find the Company’s conduct as disappointing as we do. In stark contrast to that, and in the spirit of trying to restart a productive dialogue, we are taking the high road by focusing on the clear facts.
- Adopting a “poison pill” – On January 25th, the Board unilaterally adopted a shareholders’ rights plan, which is also known as a “poison pill.” While we do not view ourselves as impacted by this maneuver, poison pills are generally regarded as one of the most egregious anti-shareholder measures a company can take, especially when there is no detectable threat of a creeping takeover attempt. The Board previously sought shareholder approval for a poison pill in July 2020, but the proposal was rejected.
- Filing a dilutive registration statement to issue nearly 52 million new shares – According to the filing, this action was taken so these shares could be “reserved for issuance under the Nano Dimension Ltd. Employee Stock Option Plan.” 5 Rather than being a move to retain employees, we view this as an initial step towards unlawfully tipping the scales of any future shareholder vote by placing these shares in the hands of Mr. Stern’s allies, including the many who work at the Company due to what we deem a culture of cronyism. This attempt to dilute current shareholders by 20% is particularly concerning when considering that just a month ago, a critical mass of shareholders – 90% of disinterested holders – rejected a proposal to cut the exercise price of Mr. Stern’s 27.7 million warrants by 60% (from $6.16 to $2.46). Shareholders had no interest in being diluted by 10% in December 2022, so it is truly confounding that the Stern-controlled Board would take steps to cause 20% dilution a month later.
We fear that Mr. Stern will persuade his allies on the Board to approve other extreme measures in the near term to try to entrench himself and maintain his Stern-controlled Board at the expense of shareholders. These actions could take the form of wasteful or dilutive M&A, anti-shareholder governance changes, or other desperate actions that further erode the Company’s value. That is why we have exercised our right to call a special meeting and proposed constructive solutions.
OUR PROPOSED RESOLUTIONS
Contrary to what Mr. Stern has claimed, Murchinson has no current plans to try to acquire or pursue control of the Company. If those were among our goals, we would have nominated a majority slate of director candidates for election at a special meeting.
We are focusing on actions that benefit all of the Company’s shareholders. In connection with our demand to convene a special meeting, we have proposed giving shareholders the opportunity to vote on resolutions pertaining to the composition of the Board by:
- Amending provisions of the Company’s Articles that currently (i) empower only the Board to fill director vacancies and, when doing so, determine that director terms may end several years thereafter and (ii) restrict shareholders to only removing directors at annual meetings and, even then, at a high threshold majority;
- Removing four directors from the current Board, none of whom were ever elected by shareholders;
- Adding two highly qualified candidates identified by Murchinson, who are independent of each other and of our firm. Our candidates, who possess the right mix of capital allocation acumen and governance expertise, are Kenneth H. Traub and Dr. Joshua Rosensweig.
In light of the aforementioned issues, we believe that substantial Board change is urgently required to improve corporate governance and oversight of management. We believe this will result in better capital allocation, corporate stewardship and value creation for shareholders. We also believe that reducing the Board size from nine directors to seven directors is more in-line with best practices for a small cap entity like Nano Dimension and would allow for more efficient governance.
Working with our outside legal advisors, we served the Company with a special meeting demand letter on January 22nd, thereby starting a 21-day window by the end of which the Company, under Israeli law, is required to call the special meeting. The Company responded by rejecting our demand outright over baseless and irrelevant technicalities. Thankfully, Israeli law provides remedies for a shareholder whose demand to call a special meeting is improperly denied, including a court order or having the meeting convened independently of a company.
As we have seen time and again, the Stern-controlled Board does not value the input of shareholders and seems more focused on manipulating the corporate machinery to prevent investors from being heard. Now, however, a shareholder has chosen to stand up to Mr. Stern and do whatever is necessary to challenge any manipulations.
Despite Nano Dimension’s initial responses to our demand, we will continue to make good faith attempts to resolve outstanding issues and have the special meeting held as soon as possible. With that said, we are ready to pursue all available legal paths if the Stern-controlled Board continues hindering our rights. We are prepared to invest whatever resources and time it will take to catalyze boardroom change for the benefit of all Nano Dimension’s shareholders and stakeholders. Murchinson will not be deterred.
Thank you for your support.
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Feature image shows Murchinson Ltd logo. Image via Murchinson.