3D-printing manufacturer Stratasys Inc. said Friday that federal officials have approved its merger with the subsidiary of an Israeli company, making the Eden Prairie company a bigger player in the growing global market for machines that create three-dimensional product prototypes.

Stratasys said the Committee on Foreign Investment has green-lighted its union with Objet Ltd. in Rehovot, Israel. The two companies expect the merger to close no later than Dec. 6.

Stratasys has attracted investor interest because of the pending merger and because of a growing belief that three-dimensional prototyping is a hot market with relatively few competitors, said Steven Dyer, an analyst at Minneapolis-based Craig-Hallum Capital Group.

The stock closed at $74.95 on Friday, down $2.08, or nearly 3 percent. On Jan. 3, the first trading day of the year, Stratasys stock closed at $31.09 -- so it's gained 141 percent for the year.

Stratasys makes rapid prototyping machines that spray and bake plastic into precise replicas of new products ranging from tools to coffeepots. Industrial corporations can feed electronic product diagrams into the machines to generate instant physical models. In addition to selling the machines, Stratasys sells special plastics, called consumables, that its machines use to make the prototypes.

3D-prototyping technology has the potential to become an early form of just-in-time manufacturing, in which companies would use machines from Stratasys and other firms to create production-grade parts instead of just prototypes.

The Economist, a British magazine, has called making three-dimensional objects without traditional manufacturing potentially revolutionary. General Electric Aviation already is working on adapting 3D-prototyping gear that will build production jet engine parts, the magazine said.

But Dyer says there are more technical hurdles to overcome before that becomes practical. For one thing, Stratasys machines today work only with plastic, not metal, which limits their ability to manufacture machine parts.

"3D printing has been around for 20 years, and it's still very much a prototyping technology," Dyer said. "Producing metal parts is the Holy Grail, but it's probably several years away."

Security concerns

As a condition of approving the Stratasys-Objet merger, the Committee on Foreign Investment, a collection of federal agencies chaired by Treasury Secretary Tim Gartner, required Stratasys and Objet to "address certain national security concerns with the proposed transaction," the companies said in a statement.

Stratasys and Objet "have agreed to modify certain business processes that the U.S. government believes could potentially create national security issues in the future," their statement said without being specific.

Those security concerns apparently delayed the closing of the deal. When the two companies announced the merger in April, they expected to close the deal by the third quarter.

The combined company, to be called Stratasys Ltd., will be 55 percent owned by present Stratasys shareholders, who are to get one share of the new company's stock for each Stratasys share they now own under the all-stock deal.

Under terms of the merger agreement, Stratasys would merge with an Objet subsidiary, making it officially based in Israel. Being based in Israel is expected to save Stratasys $3 million to $4 million a year in taxes.

The present Stratasys design and manufacturing operations will remain in Eden Prairie, where three-fourths of today's 550 Stratasys employees work. Objet, with 430 employees, will maintain its development and manufacturing in Israel.

Scott Crump, Stratasys CEO, will become chairman of the combined company, while Objet CEO David Reis will become the combined firm's CEO.

thomas.lee@startribune.com • 612-673-4113 alex@startribune.com • 612-673-4553