Believes the Stern-Controlled Board’s Decision to Challenge Our Special Meeting Demand – Without Any Valid Justification – Reinforces the Need for Objective and Independent Perspectives in the Boardroom
Contends the Company is Making Misleading Claims About Murchinson to Distract from Mr. Stern Having Presided Over a More Than 77% Share Price Decline Since Becoming Chairman
Puts Forward Proposals to Remove Four Incumbents and Appoint Two Highly Qualified, Independent Director Candidates with Sorely Needed Capital Allocation Acumen and Corporate Governance Expertise
Sees a Clear Opportunity to Optimize Nano Dimension’s Overcapitalized Balance Sheet, Explore Strategic Options to Maximize Value for Shareholders and Prevent Misuse of the Company’s More Than $1 Billion Cash Balance
Murchinson Ltd. (collectively with its affiliates and funds it advises and/or sub-advises, “Murchinson” or “we”), which holds approximately 5.1% of the outstanding shares of Nano Dimension Ltd. (NASDAQ: NNDM) (“Nano Dimension” or the “Company”), today issued the below open letter to its fellow shareholders following its unsuccessful attempts to engage with the Company’s Board of Directors (the “Board”) and management.
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 a 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 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%.1 Over the same period, the Company’s share price has lagged its only self-reported peer, Stratasys (Nasdaq: SSYS), by 27%.2 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.3 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.4 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; and
- 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 by having the meeting convened independent 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.
APPENDIX: MURCHINSON’S DIRECTOR CANDIDATES
Kenneth H. Traub has 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.
- Currently serves as the Managing Member of Delta Value Group, LLC, an investment management firm, since September 2019 and as the Managing Member of Delta Value Advisors, LLC, a consulting firm, since October 2020.
- Mr. Traub is also a member of the board of directors of Tidewater, Inc. (NYSE: TDW), an international petroleum service company, since 2018.
- Previously served on the board of DSP Group, Inc. (NASDAQ: DSPG), an Israeli-based global leading provider of wireless chipset solutions, as a director since 2012 and Chairman from 2017 until the company was acquired in 2021. Also served on the board of MRV Communications, Inc. (NASDAQ: MRVC), a supplier of communications equipment with principal operations in Israel, as a director since 2011 and Chairman from 2012 until the company was acquired in 2017.
- Mr. Traub has held various other public company board positions, including Athersys, Inc. (NASDAQ: ATHX), a biotechnology company, Immersion Corporation (NASDAQ: IMMR), a leader in haptics technology, and Intermolecular, Inc. (NASDAQ: IMI), a leading innovator in advanced materials solutions for the semiconductor industry.
Dr. Joshua Rosensweig has more than four decades of experience as a legal professional, with significant experience in corporate governance and enhancing shareholder value as an executive and director at Israel-based public companies.
- Dr. Rosensweig is founder and senior partner of Rosensweig & Co., a boutique law firm. Previously, between 2012 and 2013, Dr. Rosensweig was head of the tax department at Agmon & Co and from 1999 until 2005 served as a senior partner at Gornitzky & Co., where he led the international transactions and taxation practices.
- Since 2017, Dr. Rosensweig has been serving as a member of the board of directors of Israel Corporation (TASE: ILCO). Previously, Dr. Rosensweig served on the boards of directors of Bezeq Israel Telecommunication Corp (TASE: BEZQ) from 2010 until 2018. Additionally, Dr. Rosensweig served on the board of Alrov Properties and Lodgings Ltd. (TASE: ALRPR) from 2010 until 2018.
- Dr. Rosensweig held leadership positions as Chairman of the Board of Directors of First International Bank of Israel from 2003 until 2006 and of Poalim IBI in 2013.
Founded in 2012 and based in Toronto, Canada, Murchinson is an alternative asset management firm that serves institutional investors, family offices and qualified clients. The firm has extensive experience capturing the best returning opportunities across global markets. Murchinson’s multi-strategy approach allows it to execute investments at all points in the market cycle with fluid allocation between strategies. Our team targets corporate action, distressed investing, private equity and structured finance situations, leveraging its broad market experience with a variety of specialized products and sophisticated hedging techniques to deliver alpha within a risk-averse mandate. Learn more at www.murchinsonltd.com.
1 From March 11, 2021 to January 22, 2023 when Murchinson sent the Company the special meeting demand.
2 CEO and Chairman Yoav Stern on the Nano Dimension 3Q2022 Earnings Call, December 1, 2022.
3 Most prominent of them were NanoFabrica, Global Inkjet Systems, Essemtec, Admatec/Formatec and DeepCube.
4 In 2021 and 2022, Nano acquired NanoFabrica, Essemtec, Global Inkjet Systems and Admatec/Formatec. The revenues of those 4 companies in 2021 were, respectively: $10.5 million, $29.7 million, $10 million and $5.3 million.
5 S-8 filed with the U.S. Securities and Exchange Commission on January 27, 2023.
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Longacre Square Partners
Greg Marose / Dan Zacchei, 646-386-0091
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