Bitfarms Acquisition of Bitcoin Miner Stronghold a ‘Strategic’ Move Against Rival Riot: Experts

Bitfarms has acquired Stronghold Digital Mining, a “strategic” move that could help the Bitcoin miner resist a hostile takeover by its rival Riot, several experts told Decrypt. 

Bitfarms agreed this week to purchase the crypto mining firm in a $175 million deal, the company said Wednesday. Market watchers say the deal will boost Bitfarm's valuation and operations, making the firm a more challenging acquisition target for its competitor.

“By acquiring Stronghold now, Bitfarms demonstrates that it is not just passively waiting but is taking proactive steps to increase its value and strengthen its negotiating position,” said Julio Verissimo, CEO of Borderless Consulting, a consulting firm that works with Bitcoin miners. 

Riot has been trying to acquire Bitfarms since last April, when it made an unsolicited offer of roughly $950 million to its Canada-based rival. After Bitfarms rejected the offer, Riot began to snap up the company’s stock in a bid to gain control over its competitor.

Riot had a 19% stake in its rival’s business as of August 13, following months of steadily growing its equity in the company.

Riot and Bitfarms did not immediately respond to a request for comment from Decrypt.

As the rivals have locked horns‌ over their businesses, Bitfarms has implemented several strategies to ward off a hostile takeover, including its latest purchase agreement with Stronghold. 

Under the deal, Bitfarms will add 307 megawatts of power capacity to its mining operations, putting it on track to increase its energy portfolio to more than 950 MW with nearly 50% in the U.S. by the end of 2025, the company said in a statement.  

That bolstered operational capacity will likely strengthen the company’s market position, making Bitfarms a more expensive and challenging acquisition target for Riot, CryptoConsultz CEO Nicole DeCicco told Decrypt.  

“[It's] a way to enhance shareholder value and make Bitfarms a more formidable entity,” DeCicco said. 

As a result, Bitfarms will likely have additional leverage to negotiate better terms for its potential sale or fend off an acquisition, according to DeCicco. However, that's not the only way Bitfarms' Stronghold acquisition will help the firm deter Riot’s advances. In increasing the size and value of its company through the deal, Bitfarms is also shrinking its rival's stake in its business. 

“This strategic move… is likely to slow down or stall Riot’s attempt to acquire the company,” Verissimo said. 

In addition, the deal could invite scrutiny from regulators and investors, making any acquisition of Bitfarms longer and more difficult down the line, Verissimo added. 

Stronghold had been positioning itself for a buyout, according to Nishant Sharma, Founder of BlocksBridge Consulting, a research and communications strategy firm for the mining industry.

“Soon after Bitcoin’s halving, Stronghold Digital expressed its intention to sell ‘all or part of the company’ during its Q1 disclosure, noting that no timeline had been set for this,” Sharma said. “It seemed only a matter of time before another company, either from within or outside the industry, would acquire Stronghold.”

Bitfarms’ Stronghold Digital acquisition is the latest strategic move the Bitcoin miner has made to thwart Riot’s hostile takeover attempts. 

In June, Bitfarms implemented a “poison pill” plan, threatening to dilute its shares if Riot attempted to acquire more than 15% of its business. A Canadian court later invalidated the plan, prompting Bitfarms to issue a new shareholder rights plan in July. Under the new plan, the miner will dilute its shares if any one investor attempts to acquire more than a 20% stake in the Bitcoin miner’s business.   

Bitfarms has also resisted Riot's calls for a reconstitution of its board. The latter called for shareholders to vote on removing three members of Bitfarms’ board and replacing them with “independent, highly qualified” individuals selected by Riot.

The shareholder meeting on the matter is scheduled for October 29.