A deeper look at Riot’s ‘hostile’ bid to take over Bitfarms

As Riot Platforms continues its quest to buy rival miner Bitfarms, others are apparently interested as well.

And with a Bitfarms committee focused on determining the mining firm’s best option, it may take time for negotiations around this “hostile” bid to play out.

April’s Bitcoin halving — an event during which per-block mining rewards dropped from 6.25 BTC to 3.125 BTC — was set to create an environment ripe for mergers and acquisitions given the big warchests of some and the increasing challenges for others.

While big deals between publicly traded companies have not yet occurred, that could be about to change.

A so far unsuccessful bid

Riot Platforms, which now holds a 10% stake in Bitfarms, proposed buying the rest of the company’s stock for $2.30 per share.

The bid — first proposed last month — reflects a 24% premium to Bitfarms’ one-month volume-weighted average share price on May 24, Riot noted in a Tuesday news release.

Read more: Riot reveals bid to buy Bitfarms, following CEO ouster

A committee of independent directors “carefully considered the proposal and determined it significantly undervalues the company and its growth prospects,” Bitfarms said in a Wednesday statement.

Riot did not respond to the committee after Bitfarms requested confidentiality and non-solicitation protections, Bitfarms added.

Peter Stoneberg, managing director at crypto advisory firm Architect Partners, has spent much of his career focused on the technology space. It’s a segment where “hostile bids” — seeking to take control of a company against management’s wishes — are less likely, he told Blockworks.

This is because the value in tech companies lies typically in the people. But Riot’s proposal comes as the company seeks a permanent CEO, highlighting that the takeover would be done despite the leadership, not because of it.

“Running the rigs is not like developing the next OpenAI platform,” Stoneberg said. “And so hostile bids that generally don’t work in technology could work in mining because the people are not as critical as [they are] in most tech companies.”

Riot could have competition

A merger between Riot and Bitfarms would create one of the largest bitcoin mining companies in the world.

The combined company would have 1 gigawatt of power capacity and 19.6 exahash per second of self-mining capacity off the bat, according to Riot. Together, the two miners have 15 facilities across the United States, Canada, Paraguay and Argentina, with up to 2.2 GW of total power capacity when fully developed.

BlocksBridge Consulting founder Nishant Sharma noted that the two companies mined a combined 676 BTC in April, behind only Marathon Digital, Core Scientific and CleanSpark.

“This [potential acquisition] might signal further mergers within the mining industry, as it undergoes consolidation due to heightened competition and the increasingly challenging environment following Bitcoin’s halving,” Sharma told Blockworks.

Read more: Buyers and sellers: How bitcoin miners are thinking about post-halving M&A

But it seems Riot is not the only one with a chance to acquire Bitfarms.

Bitfarms noted it has received “additional unsolicited expressions of interest.” It has a committee considering various options, Bitfarms added — from continuing to execute its business plan to selling the company.

Joe Flynn, an analyst at Compass Point Research and Trading, said in a Wednesday research note that Bitfarms’ international infrastructure and its potential to triple its hash rate to 21 EH/s by the end of 2024 make it an attractive target.

He said he expects potential competing offers from large well-capitalized miners like Marathon Digital and CleanSpark.

Marathon — with roughly $1.2 billion of combined cash and BTC on its balance sheet at the end of April — has previously said it would potentially use its “dry powder” for inorganic growth opportunities. CleanSpark CEO Zach Bradford said earlier this month the company intends to be “one of the most measured and active acquirers in the industry.”

Read more: Rival miners Marathon, Core Scientific each think they have an edge over peers

Spokespeople for Marathon and CleanSpark declined to comment on potential interest in acquiring Bitfarms.

If a bitcoin miner committee reviewing ways to ensure maximum shareholder value sounds familiar, that might be because Stronghold Digital Mining initiated similar efforts earlier this month.

The company said at the time that it hired financial and legal advisers to consider “the sale of all or part of the company,” or another transaction that involves some or all of its assets.

Read more: The move for an ‘undervalued’ bitcoin miner? Perhaps selling the company.

So what’s next?

Riot has signaled that it plans to call a special meeting of Bitfarms shareholders after the Bitfarms’ annual meeting on Friday.

Its goal would be to add “new, well-qualified and independent directors” to the Bitfarms board, Riot said in a Tuesday statement.

Riot would be able to call such a meeting given its 10% stake in the company, though the timeline for when such a meeting would be scheduled is unclear.

A Riot spokesperson declined to comment further.

Stoneberg said this call for such a meeting could be a form of “saber-rattling” by Riot.

Either way, he added: “As an outsider looking at the tea leaves, [Bitfarms is] doing everything right to put up a strong defense to Riot’s bid.”

As part of that effort, Bitfarms has named Moelis & Company as its financial adviser. Skadden, Arps, Slate, Meagher & Flom will be among those advising the miner on legal matters.

The 24% premium Riot is putting on Bitfarms is “pretty low,” Stoneberg argued — particularly in the case of a hostile takeover.

But that probably wasn’t Riot’s best offer, he added. And the Bitfarms committee is likely weighing the proposal against those of other potential bidders.

A Bitfarms spokesperson did not immediately return a request for further comment.

Bitfarms has also pointed out its projected 223% hash rate increase and 40% efficiency improvement in 2024.

“A lot of this is posturing with Bitfarms saying their opportunity is stronger independently and they have high growth plans,” Stoneberg added. “The test that the special committee has to consider is, are we worth more independently than we are with this 24% premium.”