- Riot Platforms (NASDAQ:RIOT), a leading U.S. Bitcoin miner, is on a quest to acquire its competitor, Bitfarms (TSX:BITF), whose global operations would make it the world’s largest publicly listed Bitcoin miner
- Bitfarms has resisted, citing Riot’s undervalued offer, as it considers other existing offers under non-disclosure agreements
- The speculative nature of Bitcoin as an investment shades the transaction in unavoidable uncertainty
- Riot Platforms stock has added 5.19 per cent year-over-year and 294.54 per cent since 2019
Riot Platforms (NDAQ:RIOT), a leading U.S. Bitcoin miner, is on a quest to acquire its competitor, Bitfarms (TSX:BITF), whose global operations would make it the world’s largest publicly listed Bitcoin miner.
Riot’s efforts include openly questioning the capabilities and intentions of Bitfarms’ board after the abrupt termination of its chief executive officer, and accumulating 12 per cent of Bitfarms stock to requisition a shareholder meeting to nominate new board members. Each measure has been met with resistance, with the target company believing the offer – US$2.30 per share or US$950 million – severely undervalues its assets and operations. Bitfarms stock has since surpassed this price by 44 per cent, trading at C$3.31 per share as of 11:45 am ET, bringing its return to 114.94 per cent year-over-year and 51.83 per cent since 2019.
Bitfarms’ latest moves to buy itself time to consider competing offers under non-disclosure agreements and protect itself from Riot, which is about three times its market capitalization, include denouncing the Bitcoin miner’s “self-serving” and “hypocritical” tactics and instituting a shareholder rights plan commonly referred to as a poison pill, which is designed to depress the stock price if an investor acquires 15 per cent or more of BITF common shares.
Why Riot’s attempted takeover of Bitfarms is a speculative investment
Should Riot have its way and tack Bitfarms’ operations onto its own, the company will add:
- 850 Bitcoins to its treasury, bringing it to a little more than 9,900 Bitcoins, representing approximately C$953 million as of 10:43 am ET
- 12 operational mining facilities across the world that have earned more than 1,300 Bitcoins combined year to date, many of them in the midst of ongoing upgrades, complementing its two large-scale mining facilities in Texas
This bet on growth of course rests on Bitcoin, the first cryptocurrency, a non-government backed digital store of value that runs on a network known as a blockchain, which is designed to be operated by its users without centralized leadership. Created in the aftermath of the Global Financial Crisis of 2008, Bitcoin has grown its market capitalization to almost C$1.9 trillion, while building a reputation as a more value-accretive alternative to gold and as a source of financial freedom thanks to its robust app ecosystem.
Bitcoin is generated by filling out the ledger that records transactions on the network. Each transaction is recorded in a block, which can only become part of the overall chain after miners guess a sequence of numbers. Miners, like Riot and Bitfarms, are simply collections of computing power competing to guess these numbers, for which a pre-determined quantity of Bitcoin is the reward.
While Bitcoin has accumulated hundreds of millions of users, risen by about 21,800 per cent since 2015, last trading near C$96,000, and the network does take in a considerable amount in fees, there’s no escaping how, if this is your first time hearing about the cryptocurrency, you’d be within your rights to be suspicious about the likelihood of it generating long-term value.
This is primarily because of Bitcoin’s excessive sentiment-based market cap more than 750 times above annualized fee revenue based on figures from the past seven days, and its considerable governmental risk, given China’s ban on crypto trading and mining in 2021. This overinflated valuation is at the heart of why some, such as Michael Saylor, executive chairman of Microstrategy (NASDAQ:MSTR), believe Bitcoin heralds the next global financial revolution, while others, such as Jamie Dimon, chief executive officer of JP Morgan Chase, have gone public with their scathing criticisms, playing out how there is no solid fundamental reason to believe someone will be willing to pay more for your Bitcoin in 10 years than today.
Leadership insights
“We have attempted to privately engage with the Bitfarms board and recently sent two letters urging constructive collaboration with us around the addition of at least two new directors who are fully independent of Bitfarms and Riot. Instead of engaging with us privately and in good faith, Bitfarms has responded by implementing an off-market poison pill with a trigger well below the customary 20 per cent threshold,” Jason Les, Riot Platform’s chief executive officer, said in a statement.
“This action further demonstrates the Bitfarms board’s entrenchment and disregard for the perspectives of its shareholders, who clearly signalled their discontent less than two weeks ago when they voted out company co-founder Emiliano Grodzki,” he added. “In our most recent letter, we urged the Bitfarms board to facilitate the resignation and removal of chairman and interim chief executive officer Nicolas Bonta, who has led the Bitfarms board since 2018 and bears direct responsibility for its poor corporate governance practices, as a first step to address shareholders’ concerns. We will continue to push to address the serious corporate governance issues at Bitfarms and ensure that shareholders have a say on the company’s path forward.”
About Riot Platforms
Riot is a Bitcoin mining and digital infrastructure company focused on vertical integration. The company operates in Texas, where it benefits from low-cost power and more than US$1.2 billion in liquidity (about half cash and half Bitcoin) to increase its mining capacity from about 30 EH/s at present to 100 EH/s towards the end of this decade.
Riot Platforms stock (RIOT:NDAQ) is up by 8.01 per cent, trading at US$10.79 per share as of noon ET. The stock has added 5.37 per cent year-over-year and 295.24 per cent since 2019.
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(Top photo, generated by AI: Adobe Stock)
