On June 5, 2024, Riot Platforms, a prominent Bitcoin mining company, announced that it had acquired a 12% stake in Bitfarms Ltd., a rival in the Bitcoin mining sector.
This move comes amidst a turbulent time for Riot, with significant market activity and a contentious report from short seller Kerrisdale Capital.
Riot Platforms disclosed in a press release that it purchased 1,460,278 common shares of Bitfarms at an average price of $2.45 per share, totaling approximately $3.58 million.
This acquisition increased Riot’s ownership from 11.63% to 12% of Bitfarms’ outstanding shares.
According to Riot’s official statement, “Riot currently intends to requisition a special meeting of the Company’s shareholders, at which Riot intends to nominate several well-qualified and independent directors to join the Company’s board of directors.”
Riot has expressed concerns about Bitfarms’ corporate governance and believes that the current board’s performance has been subpar.
This acquisition followed a period of intense scrutiny and speculation surrounding Riot Platforms, particularly due to a damning report from Kerrisdale Capital.
Kerrisdale Capital is an investment management firm founded in 2009. The firm is known for its research-driven approach, particularly in the realm of short selling.
Kerrisdale Capital often publishes detailed reports on companies it believes are overvalued or involved in fraudulent activities. The investment management firm has also made headlines for its critical stance towards the Bitcoin mining sector.
On the same day as Riot’s announcement, Kerrisdale Capital released a strongly-worded report, claiming that Riot Platforms would collapse and criticizing the Bitcoin mining industry as a whole.
Kerrisdale’s report alleged that Riot “does a far better job playing energy arbitrage games and issuing stock than generating shareholder value by mining crypto.”
The report also accused Riot of diluting shareholder value by continuously issuing new stock to fund its operations. The firm wrote:
“If Riot were to stop issuing stock it would be forced to start drawing down on its cash and Bitcoin holdings.”
Kerrisdale Capital’s aggressive stance didn’t stop there. The firm’s accompanying post on social media declared, “We are launching a war against Bitcoin miners, an industry of snake oil salesmen.”
They further noted that they were betting against Riot’s stock but remained long on Bitcoin, anticipating a rise in its price.
This statement faced severe backlash from the Bitcoin community, with some suggesting that the investment management firm is betting against math itself.
The impact of Kerrisdale’s report on Riot’s stock was immediate. In the first hour of trading on June 5, Riot shares plummeted by 9.6%, dropping to $8.84.
However, following the announcement of its increased stake in Bitfarms, Riot’s share price rebounded, closing at $9.65, a slight decrease of 0.21% from the previous day. It has risen since then to $10.35 at the time of writing.
The acquisition of Bitfarms shares is part of a broader strategy by Riot to consolidate its position in the Bitcoin mining industry. In late May, Riot made a $950 million bid to acquire all of Bitfarms’ shares.
Riot claimed that Bitfarms’ founders were not acting in the best interests of all shareholders and that their offer was a fair valuation of the company’s potential.
Bitfarms, however, rejected Riot’s offer, stating that it “significantly undervalues” the company’s growth prospects. A special committee from Bitfarms requested “customary confidentiality and non-solicitation protections,” which Riot did not respond to, leading to the rejection of their proposal.
Riot’s move to increase its stake in Bitfarms and nominate new directors indicates its commitment to influencing the governance and strategic direction of Bitfarms.
The company stated it would continue to review its investment in Bitfarms and could either increase or decrease its stake depending on various factors, including Bitfarms’ financial position and market conditions.
Riot’s acquisition and its intentions to influence Bitfarms’ board are subject to Canadian securities laws, specifically Part 3 of Canadian National Instrument 62-103 and Part 5 of Canadian National Instrument 62-104.
Riot has filed an Early Warning Report as required by these regulations, ensuring transparency in its actions.
Riot emphasized its concerns about Bitfarms’ governance, saying, “We have serious concerns regarding the Board’s track record of poor corporate governance.”
Riot plans to nominate independent directors, aiming to address these concerns and steer Bitfarms towards a more favorable strategic direction.
Riot Platforms’ acquisition of a significant stake in Bitfarms is reflective of a larger trend in the Bitcoin mining industry. Major players are increasingly seeking to consolidate their positions and influence corporate governance to secure their competitive edge.
Notably, Riot Platforms operates Bitcoin mining facilities in central Texas and has electrical switchgear engineering and fabrication operations in Denver, Colorado.
Riot Platforms’ recent actions, including the acquisition of a 12% stake in Bitfarms and the intention to influence its board, highlight the dynamic and often contentious nature of the Bitcoin mining industry.
Despite the shorting pressure from Kerrisdale Capital and the resultant market volatility, Riot has shown a strong commitment to its strategic goals.
