Riot offers $950 million to buyout Bitfarms in hostile takeover amid CEO controversy

Riot Platforms has announced a proposal to acquire Bitfarms for approximately $950 million, reflecting a 24% premium to Bitfarms’ one-month volume-weighted average share price as of May 24.

According to the press release, Riot’s decision to make a hostile takeover bid follows Bitfarms’ Board of Directors’ rejection of its private proposal without substantive engagement.

The offer, which was initially made privately on April 22, comes amid internal turbulence at Bitfarms, including a CEO dispute and subsequent lawsuit.

Largest public miner

The acquisition aims to create the world’s largest publicly listed Bitcoin miner, combining Riot’s financial strength and strategic vision with Bitfarms’ existing operations. Riot Executive Chairman Benjamin Yi said:

“A combination of Bitfarms and Riot would create the premier and largest publicly listed Bitcoin miner globally, with geographically diversified operations well-positioned for long-term growth.”

Riot, already the largest shareholder of Bitfarms with a 9.25% stake, is offering a mix of cash and common stock that would result in the latter’s shareholders owning about 17% of the combined entity.

The proposed merger would create a Bitcoin mining powerhouse with approximately 1 GW of current power capacity and 19.6 EH/s of self-mining capacity, potentially increasing to 1.5 GW and 52 EH/s by the end of the year.

Citi is serving as Riot’s financial advisor, while Paul, Weiss, Rifkind, Wharton & Garrison LLP, along with Davies Ward Phillips & Vineberg LLP, are acting as legal advisors.

Bitfarms has yet to respond publicly to Riot’s latest proposal.

CEO dispute

Riot’s announcement comes amid significant turbulence at Bitfarms related to the sacking of its former CEO, Geoffrey Morphy, who has filed a lawsuit against the company for wrongful dismissal.

Bitfarms announced in March that Morphy would step down from his role later in the year once a replacement was found. This transition plan was intended to ensure a smooth change in leadership while the company searched for a new CEO.

However, Morphy filed a $27 million lawsuit against the company on May 10, seeking aggravated and punitive damages over allegations of breach of contract and wrongful dismissal. The lawsuit sought $27 million in damages and included allegations against certain members of the Bitfarms Board of Directors.

The filing of the lawsuit led to an immediate acceleration of Morphy’s termination on May 13.

Bitfarms appointed co-founder and Chairman Nicolas Bonta as interim CEO following Morphy’s dismissal. The company has stated that Morphy’s claims are without merit and intends to defend itself vigorously.

Governance concerns

Morphy’s abrupt departure and the subsequent legal battle have raised significant concerns about governance practices within Bitfarms, particularly at a critical time for the company and the broader mining industry.

The dispute has added to the challenges Bitfarms faces, including operational and market pressures following the recent Bitcoin halving. It has also caused concern among shareholders, including Riot.

Riot executives, including CEO Jason Les, raised concerns about Bitfarms’ governance following the dispute, particularly the actions taken by co-founders Bonta and Emiliano Grodzki.

Les said in a social media post:

“We are deeply concerned that the founders on the Bitfarms Board may not be acting in the best interests of all Bitfarms shareholders. The abrupt termination of the Bitfarms CEO raises serious governance questions.”

Riot plans to requisition a special shareholders meeting following Bitfarms’ Annual General and Special Meeting on May 31, 2024, to propose new independent directors for the Bitfarms Board.

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