Late last month, Nano Dimension issued a Shareholders Rights Plan, effective from February 6, 2023 until January 27, 2024. It came just a couple of months after a reported takeover attempt by Murchinson, the company's largest shareholder with around 5% of its outstanding shares.
It was the latest development in what has been a turbulent few months for a company that, under the stewardship of CEO Yoav Stern, has acquired the likes of NanoFabrica (Revenue: $10.5 million), Global Inkjet Systems (Revenue: $10 million), Admatec/Formatec (Revenue: $5.3 million.), Essemtec (Revenue: $29.7 million) and DeepCube (not generating revenue at time of takeover), while also purchasing over 12% of the outstanding shares of Stratasys.
While the company has pursued a phase of inorganic growth, its share value has fallen. This has triggered some discontent among the company's largest shareholder, who on January 22, 2023 demanded a special meeting to provide shareholders the opportunity to vote on proposed resolutions to remove four directors and appoint two independent directors. Per Nano Dimension's shareholders rights plan, it seems the company also believes Murchinson might use this meeting to acquire or take greater control of the company. Murchinson, however, denies this, and has now published a letter to Nano Dimension's shareholders.
Below, we explore the power struggle at the top of Nano Dimension, explaining why Murchinson is calling for change, what its proposals are, and how Nano Dimension is responding.
Why does Murchinson want change?
Murchinson Ltd is a global investment firm, founded in 2012, that owns 5.1% of the outstanding shares of Nano Dimension – more than any other single entity.
The investment company is unhappy with the performance of Nano Dimension under Yoav Stern, who has served as CEO since January 2020 and Chairman since 2021. Murchinson points to a ‘decline of more than 77% in the company’s share price during Mr. Stern’s chairmanship,’ and suggests that his chairmanship has been defined by ‘poor capital allocation and terrible corporate governance.’
During Stern’s tenure, Nano Dimension has made several acquisitions – with all but one generating revenue – which Murchinson believes have been used to mask Nano Dimension’s underperformance. The company also acquired 12.12% of Stratasys’ outstanding ordinary shares last year, which Stern stated was to provide shareholders with a ‘strategic upside’ of having a stake in Nano Dimension.
In its letter to shareholders, Murchinson points out that Nano Dimension’s share price over the last two years has ‘lagged its only self-reported peer Stratasys by 27%.’ It also suggests the company’s shares trade at a ‘substantial discount’ to its more than 1 billion USD cash position, which ‘reflects the market’s fear that Mr. Stern will continue to destroy value.' Thus, it believes shareholders deserve the right to vote on a reconstitution of the Nano Dimension Board.
Murchinson’s letter to shareholders stated: “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.”
What does Nano Dimension make of Murchinson’s attempts to oust members of its Board?
Nano Dimension believes Murchinson last year launched a ‘shocking smear campaign’ designed to 'harm the company and its managers.’ The company also described Murchinson’s takeover attempt, as reported by Bloomberg in November 2022, as a move made to dismantle the company.
In a press release distributed by Nano Dimension on December 14, 2022 after a Special Meeting the day prior, Nano Dimension stated: “We, Nano Dimension management, are aware of this [takeover attempt] and will protect the Company from any attempt to harm or impose measures that are not in the best of the Company and its shareholders. In the coming months, there may be further attempts to interrupt the Company’s conduct of business with the intention of inhibiting the Company’s ability to execute on its vision and strategy. Such attempts may be made based on the interests of specific shareholders and competitors, who are more focused on seizing Nano Dimension’s capital for their own benefit and their business affairs.”
Despite Murchinson’s attempts to take control of the company, Nano Dimension said it will continue to ‘execute on its vision through its M&A initiatives, R&D programs, and business development plans,’ which have ‘already yielded results, and we expect this to be more of the case in 2023 as we foresee notable opportunities in the industry that will enhance and expand Nano Dimension business and therefore benefit its shareholders.’ Nano Dimension has confirmed it expects to carry out additional significant acquisitions and mergers in the coming months.
In January 2023, Nano Dimension then announced a shareholders rights plan – often referred to as a ‘poison pill’ – which will see one special purchase right for every one American Depositary Share (ADS) outstanding, allowing shareholders to purchase from Nano Dimension one-half of one ADS at a purchase price of ).01$ per ADS. The rights would become exercisable only if an entity acquires ownership of 10% or more of Nano Dimension’s outstanding ordinary shares in a transaction not approved by the Board.
What is Murchinson’s take on the shareholders rights plan deployed by Nano Dimension?
Murchinson believes it only serves to reinforce its view that the Nano Dimension Board is not fit for purpose. Its letter to shareholders counted this as another example of its ‘deficient corporate governance’, stating: “While we do not view ourselves as impacted by this manoeuvre, 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.”
Murchinson has also taken umbrage at the filing of a dilutive registration statement to issue nearly 52 million new shares. This action is said to have been taken so shares could be ‘reserved for issuance under the Nano Dimension Ltd. Employee Stock Option Plan,’ but Murchinson sees this as a ‘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.’
This, in addition to what Murchinson deems to be a board hand-picked by Stern, exhibits a ‘culture of cronyism.’
What are Murchinson’s proposed resolutions?
Firstly, it currently states that it has no current plans to acquire or pursue control of the company and if those were the goals of the company it would have nominated a majority slate of director candidates for election at a special meeting. It is, however, worth remembering that Murchinson demanded a special meeting on January 22, 2023, only for it to be rejected by Nano Dimension because it 'fails to comply with the requirements set forth under the Israeli Companies Law.'
Apart from a potential takeover, Murchinson says it is focusing on ‘actions that benefit all of the Company’s shareholders’ and has proposed giving shareholders the opportunity to vote on resolutions pertaining to the makeup of the Board.
Murchinson would like to remove four directors from the current Board – including Stern – ‘none of whom were ever elected by shareholders,’ and add two candidates identified by Murchinson ‘who are independent of each other and our firm.’ These candidates are Kenneth H. Traub and Dr. Joshua Rosenweig. Traub is said to have a three-decade track record of driving strategic, operational, capital allocation and governance improvements to enhance shareholder value as a senior executive and public company director. Rosenweig, meanwhile, has worked for more than 40 years as a legal professional, with ‘significant experience’ in corporate governance and enhancing shareholder value as an executive and director at Israel-based public companies.
Murchinson’s propositions also include amending provisions of the Company’s Articles that currently only empower the Board to fill director vacancies and restrict shareholders to only removing directors at annual meetings at a high threshold majority.
The investment firm stated: “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.
“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.”
What has Nano Dimension had to say?
On January 31, 2023, Nano Dimension released its own message to its shareholders. In this statement, the company highlighted U.S. Securities and Exchange Commission's (SEC) investigation into Murchinson, in which the SEC found the investment firm committed misleading actions in the registration of hundreds of 'Short' stocks transactions as 'Long' stocks transactions. This was deemed illegal and sanctions were imposed on Murchinson and CEO Marc Bistricer.
Nano Dimension's statement read: "The Company demands that the directors and managers at Murchinson report to Nano Dimension’s shareholders about the sanctions imposed on them, and the circumstances that led to the investigation by the U.S. Securities and Exchange Commission (the “SEC”), including an investigation against the leaders of the Fund and their enablers, led by Mr. Bistricer, who admitted to committing securities law violations and paid large fines of over $8 million."
Nano Dimension also made reference to an 'aggressive outburst' made by Bistricer at a meeting with other shareholders present, while suggesting the 'smear campaign' waged by Murchinson began when Nano Dimension refused to agree to a takeover offer at $4.00 per share. Nano Dimension also says that takeover offer would have 'disgracefully' took advantage of all other shareholders.
Upon announcing the shareholders rights plan last month, Nano Dimension stated that it believed the adoption of the Rights Plan would protect the company’s long-term interests and enable it to realise the full potential value of shareholders’ investment into the company. In other words, Stern and the rest of the Board of Directors believe they remain the best-placed people to deliver on the promises being made to shareholders.
In the Rights Plan announcement, Nano Dimension said the move was not intended to prevent or interfere with any action that the Nano Dimension Board determines to be in its best interests. It also said the Board will now be positioned to fulfil its fiduciary duties on behalf of the company by ensuring it has sufficient time to make informed judgements about any attempts to control or significant influence Nano Dimension.
What is the most likely outcome from this fallout?
That is currently in the balance. With the issuing of a poison pill, the Nano Dimension hierarchy seems intent on staving off Murchinson’s attempts to enact change – for at least 12 months until the Rights Plan expires, or at least for the purchase of more than 10% of outstanding shares to be facilitated somewhat on its own terms.
Murchinson, meanwhile, states that it will continue to make ‘good faith’ attempts to resolve the outstanding issues and ‘have a special meeting held as soon as possible.’ It has, however, refused to rule out pursuing 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 catalyse boardroom change for the benefit of all Nano Dimension shareholders and stakeholders. Murchinson will not be deterred.”
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