Bitfarms adopts a "poison pill" plan to resist Riot's acquisition, and mining companies may face a wave of consolidation after the halving.

Original author: Chloe, PANews

Bitfarms, a Bitcoin mining company, announced on June 10 that it has adopted a Shareholder Rights Plan, also known as a “poison pill” plan, to prevent the acquisition of its competitor Riot Platforms. According to the statement, this equity dilution anti-takeover measure is a defensive measure against hostile takeovers, aimed at reducing the attractiveness of the company or diluting the acquirer’s ownership of the acquisition target.

Bitfarms said the plan has been approved by the board and is “designed to prevent the company from being acquired cheaply and maliciously during a critical strategic evaluation period in order to maintain the integrity of the evaluation process itself and the fundamental interests of shareholders.”

Bitfarm’s “poison pill” plan states that if an entity (acquirer) or its affiliates accumulates more than 15% of Bitfarms shares between June 20 and September 10, the company will issue new shares to dilute the entity’s holdings. After September 10, if any acquisition attempt meets certain conditions, the threshold will be relaxed to 20%.

In other words, Bitfarms’ equity plan sets a threshold for the changing ownership percentage over time. During the critical strategic assessment period, the threshold is higher to strengthen defense; after the evaluation is completed, as long as the acquirer meets compliance requirements, the threshold will be relaxed to 20%, indicating that the board of directors is more willing to consider friendly acquisition proposals. This arrangement is mainly to protect the interests of the company and shareholders, and to leave room for friendly mergers and acquisitions.

Riot becomes the largest shareholder of the company and requests to add independent directors to the board of Bitfarms.

The key moment that prompted Bitfarms to adopt a “poison pill” plan was Riot Platforms’ acquisition of 9.25% of Bitfarms’ shares on May 28, making it the largest shareholder of the company. Subsequently, Riot purchased 1.5 million shares on June 5, increasing its stake to approximately 12%.

Riot also stated that they plan to request a special shareholder meeting to add independent directors to Bitfarms’ board of directors, citing concerns about its corporate governance.

It is speculated that Riot is weakening Bitfarms’ anti-acquisition stance to promote its acquisition plan. This indicates that there are obvious differences and struggles between the Bitfarms board of directors and Riot regarding whether to accept the acquisition and how to protect shareholder interests.

Going back to April 22nd, Riot held a 3.61% stake in Bitfarms and made an acquisition offer to the Bitfarms board of directors, hoping to acquire all of the company’s outstanding shares. Riot believed that the Bitfarms board of directors did not seek the maximum benefit for shareholders. The Bitfarms board of directors then established a special committee to evaluate Riot’s acquisition offer. After careful consideration, the special committee concluded that Riot’s offer severely undervalued the company and rejected the nearly $1 billion acquisition proposal.

Following that, there were a series of deliberate acquisitions by Riot, as well as Bitfarms’ response measures to the “poison pill” strategy.

Was the dismissal of the CEO the catalyst for the acquisition?

However, behind Riot’s plan to hold a shareholders’ meeting and add independent directors to the Bitfarms board, there is a major factor that Bitfarms announced on May 13th that it has fired CEO Geoffrey Morphy.

According to the response from Riot CEO Jason Les, the decision to dismiss the CEO of Bitfarms played a role in Riot’s acquisition proposal. Jason Les stated that he believed that the founders of Bitfarms, Nicolas Bonta and Emiliano Grodzki, may not have sought the best interests of all Bitfarms shareholders.

In a critical execution period for Bitfarms and the entire industry, the board of directors of Bitfarms suddenly dismissed the CEO without a transition plan in place. This has raised questions about Les’ governance of Bitfarms.

In addition, former CEO Geoffrey Morphy, who was fired, has filed a $27 million lawsuit against Bitfarms, alleging that the company violated contracts and wrongfully terminated him. If these allegations are true, it will further highlight some issues within the Bitfarms board of directors.

Based on the above reasons, Les believes it is necessary to convene a special shareholders’ meeting to give shareholders the opportunity to restructure the Bitfarms board, address Bitfarms’ corporate governance issues, and create maximum value for all shareholders as a top priority.

Therefore, Bitfarms’ decision to dismiss its CEO has to some extent prompted Riot to make an acquisition offer and question the ability and motivation of the existing board. However, it is obvious that Riot also hopes to use this event to gain more shareholder support, promote the restructuring of Bitfarms’ board, and then complete its acquisition plan.

Riot is not the only one, there are other mining companies planning to participate in the acquisition

If Riot and Bitfarms merge, they will become one of the world’s largest Bitcoin mining companies. According to Riot, the merged company will have 1 GW(gigawatt) of power generation capacity and the ability to mine 19.6 exahashes (EH/s) per second.

Two mining companies have a total of 15 mining farms in the United States, Canada, Paraguay, and Argentina, with a total developed power generation capacity of up to 2.2 gigawatts. Nishant Sharma, founder of BlocksBridge Consulting, pointed out that these two companies mined a total of 676 BTC in April, second only to Marathon Digital, Core Scientific, and CleanSpark. “Because the competition has intensified and the environment has become increasingly harsh after the halving of Bitcoin, the mining industry is indeed undergoing consolidation,” Sharma told Blockworks.

And it seems that Riot is not the only company with a chance to acquire Bitfarms. Bitfarms has indicated that it has received acquisition intentions from many companies. Analyst Joe Flynn of Compass Point Research and Trading pointed out in last week’s research report that large mining companies such as Marathon Digital and CleanSpark will also be in the potential acquisition competition.