Riot encouraged shareholders to “seriously question” timing of recent Stronghold acquisition.
Toronto-based Bitcoin mining company Bitfarms and activist investor Riot Platforms continue to trade public blows leading up to an October shareholder meeting that could determine the company’s future.
In a statement released early this week, Riot warned that Bitfarms’ board “should not enter into any financing transaction” prior to the completion of the special meeting with shareholders set to take place on Oct. 29.
Riot said it “will not hesitate to hold the incumbent directors personally accountable.”
Bitfarms pushed back, releasing a statement sent on Wednesday against what they called “public attacks and actions” meant to harm the interest of other Bifarms shareholders.
The companies have been duelling since Bitfarms rebuffed Riot’s $950 million takeover offer in April, leading to Riot issuing public statements questioning the competency of Bitfarms’ leadership and steadily increasing its stake in the company. In response, Bitfarms has adopted various ‘poison pill’ plans meant to discourage a greater ownership share.
The latest public war of words follows Bitfarms entering an agreement to acquire American firm Stronghold Digital Mining in a $125-million USD stock-for-stock merger deal, plus the assumption of $50-million USD in debt. Stronghold is a vertically integrated Bitcoin mining company, placing its Bitcoin mining rigs at its wholly-owned power plants in Pennsylvania.
Bitfarms CEO Ben Gagnon said discussions had been ongoing for the past three years, touting Stronghold’s ability to increase Bitfarms’ power capacity, as well as the potential to diversify its offerings and use the sites in high-performance computing (HPC) and artificial intelligence (AI) applications. Bitcoin mining, HPC, and AI are notorious for requiring significant amounts of energy.
In an open letter sent out this week, Riot said shareholders “should seriously question” the timing of the acquisition announcement, pointing to the deal valuing Stronghold at a more than 100 percent premium on its closing price the previous day.
The transaction will see Stronghold shareholders receive 2.52 shares of Bitfarms for each owned share of Stronghold, an approximate consideration of $6.02 USD per share. Stronghold shareholders are expected to own just under 10 percent of the combined company when the transaction closes.
In an email to BetaKit, Andreas Park, a University of Toronto professor of finance, said the transaction was “unlikely” to be a snap decision amidst Bitfarms’ dispute with Riot.
“One possibility is that Bitfarms rejected Riot’s offer because such a takeover would jeopardize the Stronghold merger,” Park said. He added that it’s also possible Riot submitted its takeover offer to learn more about the merger during the negotiation process. Park added that the Stronghold merger means it’s likely Riot now needs more capital to complete a takeover of Bitfarms.
In response to Riot steadily increasing its stake, Bitfarms adopted a ‘poison pill’ plan that would automatically issue new shares when a “creeping bid” accumulated more than 15 percent of Bitfarms common shares. That original poison pill was struck down by the Ontario Capital Markets Tribunal, forcing Bitfarms to change the trigger to 20 percent. Following the adoption of the new poison pill, Riot now holds 19.9 percent of the company.
RELATED: Targeted by activist investor, Bitfarms chairman and co-founder Nicolas Bonta steps down
The months-long saga has seen Bitfarms appoint Gagnon as CEO in July and appoint him to the board after co-founder and former chairman Nicolas Bonta stepped down in August. Riot has been looking to oust Bitfarms’ leadership, including Bonta, and install its own. Riot called the executive changes a “step in the right direction” in its recent open letter, but called for further changes and for Bitfarms to “halt its defensive tactics and let shareholders be heard” leading up to the Oct. 29 shareholder.
“Riot is deeply concerned that any transaction the current Bitfarms Board will pursue will be punitively dilutive to all Bitfarms’ shareholders when there are other more attractive financing options available,” the statement reads. “If the Bitfarms Board insists on taking any such action to further entrench itself at the expense of shareholders, Riot will not hesitate to hold the incumbent directors personally accountable.”
In a response, Bitfarms said Riot has “declined to engage” constructively and that the board and leadership changes were made “to ensure the right team is in place” and “not for Riot’s benefit and approval.”
“The upcoming special meeting is not about corporate governance, as Riot has repeatedly positioned it to be, but rather about Riot attempting to acquire Bitfarms at a discounted price for the benefit of Riot shareholders, not Bitfarms shareholders,” the statement read.
Bitfarms trades on the Toronto Stock Exchange and the Nasdaq under the symbol “BITF.”
Feature image courtesy Michael Fousert via Unsplash.
