Bitfarms and Riot’s Ongoing Public Dispute Escalates Before October Shareholder Meeting

Toronto-based Bitcoin mining company Bitfarms and activist investor Riot Platforms are engaged in a heated public dispute as they approach a critical shareholder meeting scheduled for October 29, which could significantly influence the future direction of Bitfarms.

Earlier this week, Riot Platforms issued a warning to Bitfarms’ board, urging them not to enter into any new financing transactions before the special shareholder meeting. Riot Platforms threatened to hold the current directors personally accountable if such transactions proceeded. This warning is part of a broader campaign by Riot, which has involved public criticisms of Bitfarms' leadership and a strategic increase in its stake in the company. Riot’s tactics have included questioning Bitfarms' management competence and gradually acquiring more shares.

Bitfarms has countered these moves, accusing Riot of engaging in public attacks designed to undermine the interests of Bitfarms’ shareholders. This conflict intensified after Bitfarms rejected Riot's $950 million takeover offer in April. In response to Riot’s efforts, Bitfarms has implemented various defensive strategies, including 'poison pill' plans intended to prevent Riot from acquiring a larger ownership share.

The latest development in this ongoing battle involves Bitfarms’ announcement of a significant strategic move: a $125 million USD stock-for-stock merger with American firm Stronghold Digital Mining, along with the assumption of $50 million USD in debt. Stronghold, a vertically integrated Bitcoin mining company, operates its mining rigs at its own power plants in Pennsylvania. Bitfarms CEO Ben Gagnon highlighted that this merger, which has been in the works for three years, will enhance Bitfarms’ power capacity and open new opportunities in high-performance computing (HPC) and artificial intelligence (AI) applications. Both Bitcoin mining and these advanced technologies require substantial energy resources.

Riot Platforms has expressed skepticism about the timing of the acquisition, arguing that the deal, which values Stronghold at a more than 100 percent premium over its previous closing price, warrants scrutiny. According to the terms, Stronghold shareholders will receive 2.52 shares of Bitfarms for each share of Stronghold, equating to approximately $6.02 USD per share. Following the merger, Stronghold shareholders are expected to own just under 10 percent of the combined entity.

University of Toronto finance professor Andreas Park commented on the situation, suggesting that the Stronghold merger might have influenced Bitfarms' decision to reject Riot’s takeover offer. Park speculated that Bitfarms may have seen the merger as a priority, potentially complicating a takeover by Riot. Additionally, Park noted that Riot’s increasing stake and the ongoing dispute might require Riot to seek additional capital to pursue a takeover.

In response to Riot’s attempts to increase its share, Bitfarms had implemented a ‘poison pill’ strategy designed to deter hostile takeovers. Initially, this plan would have issued new shares if an entity accumulated more than 15 percent of Bitfarms’ common shares. However, following the Ontario Capital Markets Tribunal's decision to invalidate the initial poison pill strategy, Bitfarms adjusted the threshold to 20 percent. As a result, Riot Platforms currently holds a 19.9 percent stake in Bitfarms, just shy of the newly established threshold. This positioning places Riot in a precarious situation, as it is close to triggering the poison pill measures designed to dilute their influence and prevent further accumulation of shares.