Riot Platforms Pursues Takeover of Rival Bitcoin Miner Bitfarms

(Bloomberg) — Riot Platforms Inc. made an unsolicited $950 million offer to buy Bitfarms Ltd. after the small Bitcoin miner rejected a takeover approach last month.

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Riot offered Bitfarms $2.30 per share in cash and stock, according to a statement Tuesday, confirming an earlier report from Bloomberg News. The price is about 20% above what Bitfarms was trading at before Riot made a private offer to the board in April.

The bidder said Riot now owns a 9.25% stake in Bitfarms, making it the company’s largest shareholder.

According to Riot, the recent management shakeup at Bitfarms demonstrates corporate governance issues; Riot said it plans to vote to add executives to the Canadian company.

It’s the latest sign of accelerating consolidation in the industry following a Bitcoin code update known as “halving” that will result in billions of dollars in lost revenue for digital asset miners. Large-scale mining companies are looking for potential targets to expand their operations as they adapt to the industry’s new economics.

The combination will create the largest Bitcoin miner worldwide, based on the combined company’s projected computing power increase. This will also significantly increase Riot’s Bitcoin production, which will be sold by Marathon Digital Holdings Inc. and CleanSpark Inc. together will make it an even bigger player.

Bitfarms shares rose 3.3% to C$2.86 in Toronto on Monday, equaling about $2.10, giving it a market value of about $750 million. Riot rose 4% in New York on Friday, reaching a market cap of nearly $3 billion.

Management Mixed

The potential deal comes after Bitfarms this month ousted interim CEO Geoffrey Morphy after the executive filed a lawsuit against the miner seeking $27 million in damages for breach of contract.

Riot said it pitched its offer to Bitfarms’ board of directors on April 22, but the board rejected it without “real dialogue” around a deal. Under the terms of the offer, Bitfarms shareholders will own approximately 17% of the combined company.

Riot also plans to request a special meeting of shareholders to consider appointing several new independent directors after Bitfarms holds its annual meeting on May 31.

Read More: Bitcoin Miners Begin to Feel the Pressure of Lower Token Rewards

The story continues

Bitcoin mining is an energy-intensive process in which miners use specialized computers to verify transactions on the blockchain and earn rewards in the form of tokens.

Bitcoin halving reduces token rewards, the main source of income for miners, by 50% approximately every four years. The process aims to maintain the hard cap of 21 million tokens and keep the digital currency as an inflation hedge.

While some large miners like Riot managed to hold cash and thrive post-halving, many smaller miners do not have the same bargaining power as electricity producers and have less access to capital. Bitcoin miner Stronghold Digital Mining Inc. said this month it was considering alternatives, including a sale of the company.

Riot owns North America’s largest Bitcoin mining facility in Texas, with a total power capacity of 700 megawatts. The Castle Rock, Colorado-based company is building another facility in the state with a capacity of up to a gigawatt. This amount of energy is enough to power 200,000 homes in Texas.

Texas is prone to extreme weather conditions that can cause significant damage to mining facilities. Energy prices for miners in the state, the hub of crypto mining, have been rising as new miners have arrived over the past few years.

Meanwhile, Bitfarms has doubled its construction operations worldwide, including new facilities in South America, where electricity is cheaper.

Citigroup Inc. is advising Riot, which received legal advice from Paul, Weiss, Rifkind, Wharton & Garrison LLP and Davies Ward Phillips & Vineberg LLP.

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