(Bloomberg) -- Bitcoin mining company Bitfarms Ltd. agreed to acquire Stronghold Digital Mining Inc. for about US$125 million in stock while it fends off a takeover attempt by Riot Platforms Inc.
Stronghold shareholders will receive 2.52 Bitfarms shares for each share held, the companies said in a statement Wednesday. That’s a premium of around 70 per cent of Stronghold’s 90-day volume-weighted average price on Nasdaq as of Aug. 16. The transaction includes assumed debt of about $50 million.
Miners mint the cryptocurrency through a process where they compete to solve computational puzzles to unlock rewards in exchange for processing the transactions on the Bitcoin blockchain. Mining companies are seeking to expand through acquisitions as the sector faces a potential revenue squeeze in the aftermath of an April update in the Bitcoin network software known as the the halving that reduced the daily awards.
Shares of Stronghold, which announced in May that it was considering the sale of the company and other alternatives, rose about 40 per cent in pre-market trading to around $4.21. The Kennerdell, Pennsylvania-based firm burns waste coal to generate energy to power its mining operations. The company posted a second-quarter loss of $21.3 million on revenue of $19.1 million.
Bitfarms had $41.5 million in revenue in the second quarter. The purchase should boost Bitfarms’ mining capacity by providing more access to power through Stronghold, which has its own power generation and interconnection to local grids.
Riot, which has built a nearly 19 per cent stake in Bitfarms, made an unsolicited, $950 million offer to buy the company. The smaller miner rebuffed its takeover approach in April. In response to the takeover attempt, Bitfarms adopted a “poison pill” defense strategy to prevent hostile takeovers. The company scheduled a special shareholder meeting on Oct. 29 after Riot sought to replace three board members with candidates it has suggested.
Riot is one of the world’s largest Bitcoin mining companies with facilities in Texas, while Bitfarms’ operations spread across the world including South America. Castle Rock, Colorado-based Riot had $70 million in revenue in the second quarter.
Shares of Stronghold had dropped around 60 per cent this year, while Bitfarms has decreased 19 per cent. Riot has slumped 48 per cent. Bitcoin has surged 42 per cent during the same period.
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