The US Department of Justice is looking into Stratasys’ merger activities.
A filing this week revealed that both Desktop Metal and Stratasys received a “request for additional information” from the US Department of Justice related to their proposed merger.
The two companies agreed to a merger later this year, and this would likely have proceeded had there not been a bidding war for Stratasys in the past few months. After repeated and increasing bids from Nano Dimension and later 3D Systems, the latter and Stratasys seem to be having quiet discussions about a merger or takeover of some form. We’re awaiting word from the companies on this proposal.
However, there’s still that agreed-upon merger with Desktop Metal. Should the 3D Systems deal go forward, it would mean termination of the earlier merger agreement with Stratasys. As these agreements are done by formal contract, there would certainly be a “termination fee” owed to Desktop Metal if Stratasys pulled out in favor of a 3D Systems deal. 3D Systems’ proposal included payment of that fee if required.
Now there’s a twist in the story, as the Securities and Exchange Commission is involved, apparently seeking information about the Desktop Metal merger proposal. The Stratays 6-K filing with the SEC said:
“On August 18, 2023, Stratasys Ltd. (the “Company”) and Desktop Metal, Inc. (“Desktop Metal”) each received a request for additional information, often referred to as a “second request,” from the Antitrust Division of the United States Department of Justice (“DOJ”) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) in connection with the Company’s proposed merger with Desktop Metal. Issuance of the second requests extends the waiting period imposed by the HSR Act until 30 days after the Company and Desktop Metal have each substantially complied with the second requests, unless the period for review is terminated earlier by the DOJ.”
What does all this mean? What is the HSR Act?
The HSR Act is a series of extensions to US anti-trust laws that require filings. Wikipedia explains:
“The HSR Act provides that parties must not complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the U.S. Federal Trade Commission and Department of Justice and waited for those agencies to determine that the transaction will not adversely affect U.S. commerce under the antitrust laws. While parties can carry out due diligence and plan for post-merger integration, they may not take any steps to integrate operations, such as an acquiring party obtaining operational control of the acquired party.”
Basically, this means that the Desktop Metal / Stratasys merger would be on hold until they provide the required filings with the DOJ and the authorities approve of the merger.
The implication here is that the DOJ is concerned that a near-monopoly situation might be created by this merger, and they seek to investigate further. They could approve the merger, or they could prevent it from happening.
This investigation could all be moot, considering that the new 3D Systems proposal might result in termination of the Desktop Metal deal.
However, if the DOJ was interested in the smaller Desktop Metal merger, they will absolutely be far more interested in a merger with 3D Systems.
As I’ve previously written, a combined Stratasys and 3D Systems would be the most gigantic 3D printing company that has ever existed, with not only powerful financial resources, but also control over countless unique and patented 3D patented processes.
That would seem to look a lot more like a monopoly than a merged Desktop Metal and Stratasys.
The implication here is that the proposed 3D Systems deal with Stratasys, when and if it is formally announced, would almost certainly come under DOJ scrutiny for anti-trust violations.
Could that blow up a 3D Systems deal? Perhaps, but this aspect is likely being considered behind the scenes, and it may be the parties are developing a remedy in advance.
Another possible outcome might be that a merger may not take place for quite some time if a significant DOJ investigation is to take place. That alone could change the economics of the situation.
Finally, there is the possibility that this is a routine procedure by the DOJ, as they do require notification and filings when certain financial thresholds are passed, for which both of these companies qualify.
It should be interesting to see what happens next in the Stratasys saga.