Why is Riot Platforms in a hostile takeover of Bitfarms?

on Jun 18, 2024
  • Riot Platforms is working on a hostile takeover of Bitfarms.
  • Bitfarms has rejected the offer and enacted a poison pill.
  • We explain why Riot is so interested in Bitfarms.

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Bitfarms (NASDAQ: BITF) and Riot Platforms (NASDAQ: RIOT) stock prices have been in the spotlight in the past few weeks. BITF has surged by over 78% in the past 30 days, giving it a market cap of over $1.19 billion. RIOT has dropped by almost 8% in the same period. 

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Riot Platforms wants Bitfarms

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Bitfarms shares have jumped sharply after Riot Platforms made a bid for the Canadian company in April. It wanted to acquire it in a $950 million transaction, which Bitfarms has rejected saying that it undervalued the company. 

Since then, Riot has become one of Bitfarms biggest shareholders with a 14% stake.In the aftermath, Bitfarms has implemented a poison pill in a bid to prevent Riot from taking control of the company. 

A poison pill is a common approach in the corporate sector where a company threatens to issue more shares to dilute an aggressive acquirer.

Therefore, the question is why Riot Platforms is so interested in Bitfarms, one of the leading Bitcoin mining companies.

First, Riot wants to grow its market share in the mining industry. It hopes to ultimately pass CleanSpark and Marathon Digital, which have become bigger companies by market capitalisation.

Second, the mining industry has gotten highly competitive and scale will be important. According to Companies by MarketCap, there are now 21 publicly traded mining companies. Riot and Bitfarms mined 215 and 156 Bitcoins, respectively in May. They mined 1,364 and 941 coins respectively. 

Third, Riot is interested in Bitfarms because it is one of the most efficient mining companies. It costs just $20,500 to produce a Bitcoin while Riot Platforms spends $23,034. In a note in January, Coinshares wrote:

“Unless the price of bitcoin remains above $40,000, we believe that only Bitfarms, Iris, CleanSpark, TeraWulf and Cormint will continue to operate profitably.”

Impact of the last halving event

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Fourth, and most importantly, Riot Platforms wants to offset the impacts of the recent halving event that led to a reduction in the number of coins. Riot produced 215 coins in May, down from 375 in the previous month. Bitfarms, on the other hand, produced 156 coins down from 264 in the previous month. 

Additionally, Riot Platforms loves Bitfarms’ operations and balance sheet. As part of its growth strategy. Bitfarms has secured over 24,000 miners, increasing the total delivery this year yo 88,000. It also aims to increase its hash rate to 21 EH/s and 21 w/TH his year in a bid to compensate the impact of the halving event. 

Also, Riot Platforms believes that Bitfarms is an undervalued company with a solid balance sheet. It ended the quarter with over $124 million in liquidity made up of cash and Bitcoins.

Analysts believe that the Bitcoin mining industry is ripe for more consolidation now that the mining difficulty has continued rising. The consensus is that many small mining companies will not survive in the long term.

This consolidation has happened in other mining companies as well. Glencore is the giant it is today because of its $90 billion merger with Xstrata. Similarly, BHP, the biggest mining company in the world has achieved this status because of its acquisition of Billiton. The same is true in the energy industry, where Occidental acquired Anadarko, Exxon bought Pioneer Natural Resources, and Chevron bought Hess.

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