Introduction

Riot Platforms, a leading Bitcoin mining company, has made an offer to acquire Bitfarms, a smaller Canadian rival. This proposal, made on April 22, offers Bitfarms’ shareholders a significant premium over the current share price. Riot, which already owns 9.25% of Bitfarms, has provided updates following Bitfarms' rejection of the offer.

Riot's Proposal and Tactics

Riot Platforms proposed a deal worth approximately $950 million in equity value to Bitfarms’ shareholders. This offer consists of cash and common stock, providing a 24% premium over Bitfarms’ average share price for the month ending May 24, 2024. Riot emphasized that Bitfarms’ shareholders could benefit from joining a strong and well-managed company, potentially increasing their future value.

Leadership Issues at Bitfarms

Bitfarms has been undergoing a leadership change, having announced the search for a new CEO on March 25. The former CEO and president, Geoffrey Morphy, expressed confidence in the management team's ability to meet growth targets for 2024. However, Morphy filed a lawsuit against Bitfarms on May 10 for breach of contract and wrongful termination, seeking $27 million in damages. Bitfarms terminated Morphy on May 13 and appointed president and co-founder Nicolas Bonta as his successor. Riot noted that they would suggest new independent directors for Bitfarms’ Board at a special shareholders meeting after Bitfarms’ Annual General and Special Meeting on May 31.

Financial Results and Future Outlook

Bitfarms reported poor annual earnings in 2023 and initiated a costly technical upgrade in preparation for upcoming Bitcoin halving events. Although analysts had positive expectations for Bitfarms after the halving, its earnings in April dropped by 29% compared to the previous year. In contrast, Riot saw a 131% increase in net income, reaching $211 million in the first quarter of 2024, although it has not released financial data since then. Riot argued that merging the two companies would create a powerful entity with 1 GW of current power capacity and 19.6 EH/s of self-mining capacity, potentially expanding to 1.5 GW and 52 GW, making it the largest publicly traded Bitcoin miner in terms of capacity.

Conclusion

Riot Platforms’ bid to acquire Bitfarms comes amid financial difficulties and leadership changes at Bitfarms. Riot’s proposal aims to combine resources and strengths, creating a strong entity in the Bitcoin mining industry. The outcome of this proposal could have significant effects on both companies and the broader market.