Riot Platforms Pursues Takeover of Rival Bitcoin Miner Bitfarms

Article content

(Bloomberg) — Riot Platforms Inc. has taken a 9.25% stake in Bitfarms Ltd. and plans to go public with a takeover offer for the smaller Bitcoin miner, which rebuffed its approach last month, according to people familiar with the matter. 

Riot has offered $2.30 per share in cash and stock for Bitfarms, representing $950 million in equity value, said the people, who asked to not be identified because the details aren’t public. Riot, which believes Bitfarms’ recent management turnover illustrates corporate governance problems, also plans to call a vote to add directors at the Canadian company, said the people.

Article content

Article content

It’s the latest sign of accelerated consolidation in the sector on the heels of a Bitcoin code update, known as “the halving,” that will result in billions of dollars of lost revenue for miners of the digital asset. Large-scale mining companies have been looking for potential targets to expand their operations as they adjust to the industry’s new economics. 

The combination would create the largest Bitcoin miner globally based on the combined company’s projected computing power growth. It would also significantly boost Riot’s Bitcoin production, making it an even bigger player along with Marathon Digital Holdings Inc. and CleanSpark Inc.   

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

A representative for Riot declined to comment. A representative for Bitfarms didn’t immediately respond to a request for comment. 

Management Shuffle

The potential deal comes as Bitfarms goes through a period of management turmoil. The company fired interim CEO Geoffrey Morphy this month after the executive filed a lawsuit against the miner claiming $27 million in damages for breach of contract. 

Article content

Article content

Riot made its offer on April 22 to Bitfarms’ board, which rejected the bid without any “substantive dialogue” around a deal, according the materials reviewed by Bloomberg. Under the terms of the offer, Bitfarms shareholders would own about 17% of the combined company, the materials show. 

Riot also plans to request a special meeting of shareholders to consider appointing several new independent directors after the company’s annual meeting on May 31. 

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

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

The Bitcoin halving cuts token rewards — the main revenue source 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 larger miners such as Riot have managed to retain cash and thrive after the halving, many smaller miners lack the same negotiating power with electricity producers and have less access to capital. Earlier in May, Bitcoin miner Stronghold Digital Mining Inc. said it’s weighing alternatives, including a sale of the company.

Article content

Riot has 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 site in the state with up to one gigawatt of capacity. That amount of energy is enough to power 200,000 Texas homes. 

Texas has been prone to extreme weather conditions that can cause substantial damages to mining facilities. Energy prices for miners in the state, a hub of crypto-mining, are on the rise with new miners moving in over the last few years. 

In the meantime, Bitfarms has doubled down on building operations across the world including new sites in South America, where electricity is cheaper. 

Article content