THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014
Xaar plc
Proposed increase of investment by Stratasys in Xaar 3D with an option for Stratasys to acquire the whole of Xaar 3D within 3 years
Xaar plc ("Xaar") is pleased to announce a significant strategic development for Xaar 3D Limited ("Xaar 3D"), its 3D Printer business. Xaar has entered into an agreement with Stratasys, Ltd. ("Stratasys"), its partner in Xaar 3D, to:
- sell 20% of Xaar's holding in Xaar 3D to Stratasys for US$10 million; and
- issue Stratasys a call option to acquire the remaining 55% of Xaar 3D not held by Stratasys for at least US$33 million, which is exercisable over three years (together, the "Proposed Transaction").
The Proposed Transaction creates a strong strategic partnership for the development and growth of Xaar 3D and unlocks value for Xaar's shareholders.
Xaar 3D develops industrial grade products and services based on a unique implementation of the High Speed Sintering technology. These products and services target the fast growing opportunities of low to medium volume part production by 3D Printing. Xaar 3D's core strength lies in its capabilities and experience in machine design of polymer powder bed systems. These capabilities include powder management and thermal control, as well as years of experience in application and materials development for powder sintering applications.
On 11 July 2018, Xaar announced a joint investment agreement (the "Initial Transaction") with Stratasys, a leading player in the 3D Printing industry, to develop 3D printing solutions based on High Speed Sintering technologies, forming Xaar 3D. As a result of the Initial Transaction, Stratasys currently holds a 15% equity interest in Xaar 3D. In addition, at the time of the Initial Transaction, Stratasys was granted an option to increase its ownership in Xaar 3D up to a total of 30% (the "Initial Option").
Immediately prior to the completion of the Proposed Transaction, Stratasys will exercise part of the Initial Option, to acquire new shares issued by Xaar 3D, which will increase Stratasys' total ownership prior to completion of the Proposed Transaction to 25%, in exchange for US$4 million. The unexercised part of the Initial Option will be cancelled.
Immediately following and conditional upon the completion of the Proposed Transaction, Stratasys and Xaar will together invest US$3.25 million, pro rata to their new ownership interests, in Xaar 3D (the "Proposed Further Investment").
Having made significant progress over the past year and given the potential of Xaar 3D's technology, Stratasys has expressed an interest to Xaar to materially increase its stake in Xaar 3D. The Board believes that the terms represent good value for Xaar shareholders as they allow:
- Xaar 3D to benefit from increased financial resources with which to accelerate its development;
- Xaar 3D to benefit to a greater degree from Stratasys' leading knowledge of the 3D market and go-to-market expertise; and,
- Xaar to crystallise immediate value for its shareholders, while giving shareholders continued exposure to an attractive business with the potential for significant value realisation in the future.
Principal terms of the Proposed Transaction and Proposed Further Investment
Immediately following the exercise of part of the Initial Option, Stratasys will acquire shares from Xaar comprising 20% of Xaar 3D, for US$10 million, which will increase Stratasys' stake in Xaar 3D to 45%.
Xaar will also grant Stratasys an option to acquire all of the remaining shares held by Xaar in Xaar 3D (the "Call Option"). The Call Option can be exercised at any time within 3 years from completion of the Proposed Transaction, with the valuation of Xaar 3D at the time the Call Option is exercised being the greater of US$60 million (equating to US$33 million for 55%) or two times the revenues of Xaar 3D in the last 12 months from the date Stratasys delivered to Xaar a notice of its intention to exercise the Call Option. In addition, if the Call Option is exercised and Stratasys becomes the sole shareholder of Xaar 3D, Xaar will be entitled to an annual payment of 2% of the revenue associated with this business for a period of 15 years starting from the date the Call Option is exercised, up to a maximum aggregate amount of US$10 million.
Immediately following, and conditional upon, completion of the Proposed Transaction, Stratasys and Xaar will together invest US$3.25 million, pro rata to their new ownership interests, whereby Stratasys and Xaar will invest US$1.46 million and US$1.79 million respectively in Xaar 3D.
At the same time as signing the additional investment agreement, Xaar 3D has signed an agreement for distribution of 3D Printers with Stratasys and Xaar has signed a supply agreement for the supply of printheads to Xaar 3D, which will continue if Stratasys exercises the Call Option (together the "Proposed Transaction Agreements").
At 31 December 2018 Xaar 3D had gross assets of £13.1 million and in the year to 31 December 2018 made a loss before tax of £0.4 million.
Reasons for the Proposed Transaction and the Proposed Further Investment
Xaar 3D has an important partnership with Stratasys which enables it to access the distribution network of a major player in the world 3D market and maximise the commercial opportunity for Xaar's attractive technology in the area of 3D printing known as High Speed Sintering. Stratasys has expressed an interest for a larger holding in Xaar 3D to enable a deeper collaboration and to unlock the synergies between both companies, and also an option to acquire the remaining equity in Xaar 3D on an agreed basis at a price which would represent a strong return for Xaar in relation to the investment made to date.
The Proposed Further Investment of US$3.25 million ensures Xaar 3D remains well funded to complete its commercialisation activities and successfully launch its 3D Printer product in the market.
The investment by Stratasys positions Xaar 3D for further growth, whilst also unlocking significant value for Xaar shareholders. The gross proceeds received by Xaar and Xaar 3D on completion of the Proposed Transaction and Proposed Further Investment is shown in the table below:
US$ Millions |
Proceeds |
|
Xaar Consolidated |
For use by Xaar 3D |
For use by the remaining Xaar group |
|
|
|
|
Initial Option Part Exercise (10%) |
4.00 |
4.00 |
|
Proposed transaction (20%) |
10.00 |
|
10.00 |
Proposed further investment |
1.46 |
3.25 |
(1.79) |
|
|
|
|
Total |
15.46 |
7.25 |
8.21 |
Completion of the Proposed Transaction and Proposed Further Investment is conditional on the following:
1. Approval by Xaar's shareholders as the Proposed Transaction and Proposed Further Investment (when aggregated with the Proposed Transaction) is a Class 1 transaction, and also a Related Party transaction (since Stratasys is a substantial shareholder of Xaar 3D) for Xaar under the Listing Rules; and
2. Other customary conditions.
The Proposed Transaction and Proposed Further Investment are both expected to close before the end of the year.
As part of the investment agreement which will become effective on completion of the Proposed Transaction, Doug Edwards will remain as Chairman of Xaar 3D. The Board of Xaar 3D will have up to three Xaar nominated Directors and up to two Stratasys nominated Directors.
Professor Neil Hopkinson, Xaar 3D's Director of Technology, is the inventor of the High Speed Sintering technology and a recognised world-wide expert in 3D Printing. Professor Hopkinson has committed to remaining with the business.
Further details of the Proposed Transaction will be provided in a Circular which, together with a notice to convene a general meeting, is expected to be sent to Xaar shareholders within the next 75 days.
Use of proceeds
The Board believes that it is appropriate for Xaar to retain a strong balance sheet and thus Xaar will retain the gross proceeds of US$15.46 million from the Proposed Transaction and Proposed Further Investment of which US$7.25 million will be used exclusively by Xaar 3D. As previously announced, Xaar is currently undertaking a strategic review of its Thin Film business. On completion of this strategic review, Xaar will evaluate its ongoing cash requirements and the optimal shape of its balance sheet.
Doug Edwards, Chief Executive Officer, Xaar, said:
"Xaar 3D has great potential and we look forward to continuing to work with Stratasys to develop its full potential in this deeper relationship. I am pleased that this transaction will create good value for Xaar shareholders and unlocks the ability for more significant value in due course."
Omer Krieger, EVP Products, Stratasys, said:
"Xaar 3D has made significant progress over the past year and we see benefits to Stratasys in extending its investment in Xaar 3D's innovative High Speed Sintering based solutions. We look forward to continue developing the technology together with Xaar and believe the combined expertise of both parties will lead to exploitation of the technology's promising potential. This continues our company's strategy of complementing our own robust R&D efforts with partnerships and investments in other innovative companies to develop new capabilities and products that create new value to our customers."
Enquiries:
Xaar plc |
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Doug Edwards, Chief Executive Officer Shomit Kenkare, Chief Financial Officer |
+44 (0)1223 423 663 |
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Jefferies International (Financial advisor and Sponsor) |
+44 (0)20 7029 8000 |
Max Jones |
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Will Soutar |
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Tulchan Communications |
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James Macey White David Ison |
+44 (0)20 7353 4200 |
About Xaar
Xaar is a world leader in the development of digital inkjet technology. Our technology drives the conversion of analogue printing and manufacturing methods to digital inkjet which is more efficient, more economical and more productive than the traditional methods which have been in use for years. We design and manufacture printheads as well as systems for product decoration and 3D Printing which use our inkjet technology.
About Stratasys
Stratasys is a global leader in additive technology solutions for industries including Aerospace, Automotive, Healthcare, Consumer Products and Education. For nearly 30 years, a deep and ongoing focus on customers' business requirements has fueled purposeful innovations - 1,200 granted and pending additive technology patents to date - that create new value across product lifecycle processes, from design prototypes to manufacturing tools and final production parts.
Important notices
Jefferies International Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Xaar plc and no one else in connection with the matters referred to in this announcement and will not be responsible to anyone other than Xaar plc for providing the protections afforded to clients of Jefferies International Limited, or for providing advice in connection with the contents of this announcement or any other matter referred to herein.
This announcement contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", "believes", "targets", "aims", "projects" or words or terms of similar substance or the negative thereof, as well as variations of such words or phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements include statements relating to (a) future capital expenditures, expenses, revenues, earnings, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects, (b) business and management strategies and the expansion and growth of Xaar's operations, and (c) the effects of global economic conditions on Xaar's business.
Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors may cause actual results, performance or achievements of Xaar to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of Xaar to differ materially from the expectations of Xaar, include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation and policy, including in relation to the environment, health and safety and taxation, labour relations and work stoppages, interest rates and currency fluctuations, changes in its business strategy, political and economic uncertainty and other factors. Such forward-looking statements should therefore be construed in light of such factors. Neither Xaar nor any of its directors, officers or advisers provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules), Xaar is not under any obligation and Xaar expressly disclaims (to the maximum extent permitted by law) any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
No statement in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for Xaar or the Xaar group post-transaction for the current or future financial years would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for Xaar.
This announcement is not intended to, and does not constitute, or form part of, any offer to sell or an invitation to purchase or subscribe for any securities or a solicitation of any vote or approval in any jurisdiction. Xaar shareholders are advised to read carefully the formal documentation in relation to the Proposed Transaction once it has been despatched. Any response to the Proposed Transaction should be only on the basis of the information in the formal documentation to follow.
