Inside Riot’s $204m gambit to take over Bitfarms

In May and June of this year, news reports of Riot Platform’s “hostile takeover” attempt of Bitfarms roiled the bitcoin mining stock market. In April, the company made an offer to purchase Bitfarms for $950 million, an offer the rival swiftly rejected (the company’s market capitalization was $650 million at the time). After being rebuffed, Riot started gobbling up shares of its competitor in Q1. 

So far in 2024, Riot has spent $204 million on 90,110,912 outstanding common shares of Bitfarm’s stock in 51 separate purchases. 

The first of these purchases occurred on March 28, 2024, and the most recent came on September 3, 2024. Riot’s spending spree has secured it 19.9% of all outstanding shares in Bitfarms, making it the company’s largest shareholder. As of June 30, 2024, Bitfarms had 425,875,000 common shares outstanding.

A hostile takeover is a financial maneuver where a company attempts to legally seize control of another by purchasing shares of that company. Now, Riot cannot functionally commandeer Bitfarms unless it holds over 50% of the company’s shares. So its strategy hinges on purchasing enough stock in Bitfarms to place pressure on the company and win over the support of other large shareholders, with the ultimate goal of supplanting the board with one that will favor Riot.

The gambit is a daring acquisition attempt, one that could put Riot in hot water with its own investors if it fails. 

As it stands now, Riot’s takeover aspirations rest on a November 6, 2024 shareholder meeting, during which the company will make its case to other shareholders that the Bitfarms board should be replaced. If they can’t compel others to take the board to a vote, though, then the entire takeover attempt could fall apart.

From Riot’s initial offer, to its breakneck acquisition of Bitfarms shares, to Bitfarms poison pill strategies, and everything in between, the case has evolved into a game of corporate chicken – both sides are throwing their weight into the struggle and betting on the other to give in at the last moment. 

If Bitfarms gives in, it will be subsumed by Riot. But if Riot gives in, it will be caught holding a $200 million bag of equity and answering questions from its own shareholders regarding why it didn’t spend that cash on an actual, fruitful acquisition. 

Bitfarms adopts poison pill strategy to combat takeover

All said, the two companies have been at it for nearly five months, and the soonest the dispute could be resolved will be in November during a Bitfarms shareholder meeting – and even then, a resolution is not guaranteed. Since Riot first publicized the takeover attempt in May, Riot’s and Bitfarms’ stock prices have fallen 31% and 8%, respectively. 

Riot and Bitfarms ostensibly negotiated back and forth for a month following Riot’s initial offer in April. Once these negotiations broke down entirely and Riot accelerated its share purchases in May, Bitfarms went on the defensive. 

The company’s first riposte to Riot’s takeover came on June 10, 2024, when Bitfarms released its shareholder rights plan. In finance speak, this plan is a classic poison pill, a strategy where a company dilutes its stock by issuing new shares to specific shareholders, often to prevent a hostile takeover.

Under the terms of the first plan, Bitfarms promised each shareholder – except for Riot – one right per share starting on June 20, 2024. Shareholders could exercise these rights to purchase shares at a discount to current market value if Riot (or any other entity) acquired 15% of Bitfarms’ shares before September 10, 2024 or 20% of shares after this date. 

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Importantly, the 15% and 20% trigger events would only apply if Riot circumvented the Permitted Bid provision dictated by Canadian securities laws, which stipulates that a company attempting a takeover must make an offer to all shareholders, keep its bid open to all shareholders for 105 days, and receive at least 50% support from shareholders that are independent of takeover company. 

Riot submitted an application to the Capital Markets Tribunal of the Ontario Securities Commission to dismantle Bitfarms’ shareholder rights plan. Per the application filing, Riot’s argument hinges on the fact that Bitfarm’s 15% threshold for triggering the poison pill is “atypical.”

“The 20% threshold stipulated in virtually all Canadian shareholder rights plans is the only logical and appropriate threshold that is consistent with the 20% threshold under the Canadian take-over bid regime, at which point an offeror is required to make a formal take-over bid and the additional regulatory protections for security holders begin to apply,” the application reads.

Further, Riot argues in the application that “Riot has not formally commenced a take-over bid to acquire any Bitfarms Shares or announced an intention to do so.”

Bitfarms poison pill strategy (take two)

The Ontario Securities Commission rejected Bitfarm’s first shareholder rights plan, but the company adopted a second plan on July 24, 2024. The second shareholder rights plan is nearly identical to the first, although the second plan stipulates a 20% takeover threshold. Notably, Bitfarms also doesn’t specify that the shareholder plan is in place to guard against Riot’s takeover, instead leaving it open to any takeover attempt. The 20% threshold and the nonspecificity seem to address the concerns that Riot raised with the Ontario Securities Commission in June (although we won’t know for sure until the commission rejects Bitfarms’ plan or leaves it alone).  

As of July 24, 2024, Bitfarms shareholders had six months to approve the plan. It is still subject to regulatory approval, and as of July 26, 2024, the Toronto Stock Exchange deferred its decision making on the plan, passing the puck to the Ontario Securities Commission as it did with the first plan. 

While all of this was occurring, Bitfarms co-founders Emiliano Grodzki and Nicolas Bonta resigned from the company’s board. Fanny Philip – the former COO of Canadian bitcoin miner Sato – filled one of these seats in late June, while Ben Gagnon, whom the Bitfarms board appointed as CEO in July, filled the other in mid August. 

There’s been no serious action regarding the takeover since the second poison pill proposal. The next big ticket item for the takeover attempt is a Bitfarms shareholder meeting scheduled for November 6, 2024, an event that Bitfarms rescheduled from its originally scheduled date of October 29, 2024.

All eyes on November

Unsurprisingly, both miners have conflicting visions for the end goal of this November meeting. 

As it stands currently, the November meeting could be make or break from Riot’s takeover attempt, and it will use the meeting as an opportunity to make its case against Bitfarms’ current board, form a coalition, and vote the board out. Bitfarms will use the meeting to make a case that Riot’s takeover attempt is purely self-interested and against the best interests of other Bitfarms shareholders.

In an open letter to Bitfarms shareholders on September 3, Riot opined that its “focus remains on fixing Bitfarms’ broken governance,” and it claims that Bitfarms’ recent board member reshuffling and appointment of its new CEO, Ben Gagnon, “followed Riot’s sustained public pressure and would not have occurred had Riot not challenged the entrenchment of the Bitfarms Board.” Riot penned the letter with the shareholder meeting as the backdrop, a meeting that it requested back in late June.

Riot goes on to criticize Bitfarms’ board appointment for Fanny Philip, charging that “Bitfarms chose to make this appointment without consulting Riot, its largest shareholder, even though the Bitfarms Board knew that [Riot] had proposed a slate of highly qualified director nominees and specifically asked that [the company] be consulted before any board changes were made.” The company also criticized Bitfarm’s recent acquisition of Stronghold and its poison pill strategy.

Bitfarms responded to this open letter with its own, stating that Riot’s letter deflects from the real reason for the shareholder meeting: Riot’s takeover attempt. Per a company statement on September 4: 

“The upcoming special meeting is not about corporate governance, as Riot has repeatedly positioned it to be, but rather about Riot attempting to acquire Bitfarms at a discounted price for the benefit of Riot shareholders, not Bitfarms shareholders. Riot has declined to engage with us constructively – including by refusing to enter into a standard non-disclosure agreement with Bitfarms or put forth a revised proposal for our consideration – and has instead taken to public attacks and actions to harm the interests of other Bitfarms shareholders.”

The November meeting will likely decide the fate of Riot’s takeover attempt – or at the very least, put an end to this first phase. If Riot cannot muster a quorum of Bitfarms shareholders to vote on new board members, then its takeover bid will stall at best or founder at worst. 

Moreover, Riot likely cannot risk purchasing any additional shares of Bitfarms without triggering the 20% threshold stipulated by the second shareholder right’s plan; remember, the Ontario Securities Commission’s rejection of Bitfarm’s first plan was partially predicated on the 15% threshold being too low, so now that the new plan’s threshold is at 20%, it’s unlikely that the commission would have cause to reject it. If Riot triggers this threshold and Bitfarms does dilute its shares with the poison pill, then Riot’s own stake will shrink and it will have less sway with any would-be coalition aligned with its aspirations. 

Riot cannot easily unload its Bitfarms shares, either, as it now has a fiduciary responsibility to the company as its largest shareholder to do what’s in the best interest of Bitfarms shareholders. (To offload these shares in a responsible way, Riot would need to offload them in a private sale to an institutional firm). 

Simply put, Riot could be stuck in a $200 million hole without a clear way out, unless the miner has some hidden leverage – like a gentleman’s agreement with another large shareholder to vote against the board, for example – as the company enters the shareholder meeting.

A timeline of Riot’s takeover attempt of Bitfarms

There’s a lot going on with this news event, so we’ve consolidated the major events in the timeline below. 

• Riot sends letter on April 22, 2024 offering to buy Bitfarms at $2.30/share for $950 million

• May 28, 2024 – Riot sends a letter after Bitfarm’s rejection; files first Schedule 13D with initial round of share purchases

• May 29, 2024 – Bitfarms responds to Riot’s takeover with a press release

• June 10, 2024 – Bitfarms announces shareholder rights plan (the “poison pill”)

• June 10, 2024 – Toronto Stock Exchanges defers consideration of acceptance of shareholder plan

• June 12, 2024–Riot comments on “poison pill” strategy

• June 12, 2024–Bitfarms issues statement regarding Riot’s comments on its shareholder rights plan

• June 24, 2024 – Riot submits an application to the Capital Markets Tribunal of the Ontario Securities Commission to request a cease trading order for Bitfarms’ shareholder rights plan

• June 24, 2024 – Riot requests a shareholder meeting and calls for a change to Bitfarms’ board, nominates John Delaney, Amy Freedman, and Ralph Goehring for board of director seats

• June 24, 2024 – Bitfarms acknowledges Riot’s shareholder meeting requisition to change its board, issues statement saying that Riot’s bid is a low-ball offer

• June 27, 2024 – Bitfarms appoints Fanny Philip to its board of directors

• July 8, 2024 – Riot launches A Better Bitfarms website

• July 8, 2024 –  Bitfarms appoints Ben Gagnon as CEO

• July 12, 2024 – Bitfarms sets date for special meeting of shareholders for October 29, 2024

• July 24, 2024 – Capital Markets Tribunal of the Ontario Securities Commission orders that Bitfarms terminates its Shareholder Rights Plan; Bitfarms adopts new rights plan

• July 26, 2024 – Bitfarms announces that the Toronto Stock Exchange has deferred its consideration on Bitfarms’ new shareholder rights plan; plan is still intact for 6 months since announcement unless regulators terminate it early

• August 13, 2024 – Ben Gagnon appointed to board; co-founder Nicolas Bonita steps down

• August 21, 2024 – Riot announces Stronghold acquisition

• Sept 3, 2024 – Riot issues open letter regarding Bitfarms’ October 29, 2024 shareholder meeting

• September 4, 2024 – Bitfarms responds with its own press release 

• September 9, 2024 – Bitfarms reschedules shareholder meeting to November 6, 2024