425: Riot Platforms Criticizes Bitfarms' Adoption of 'Poison Pill' and Corporate Governance

Riot Platforms publicly criticizes Bitfarms' adoption of a shareholder rights plan (poison pill) with a 15% trigger, viewing it as shareholder-unfriendly and indicative of poor corporate governance.

Summary

• Riot Platforms has criticized Bitfarms for adopting a shareholder rights plan, also known as a 'poison pill'.
• The plan prevents any shareholder from acquiring 15% or more of Bitfarms' common shares without a formal takeover bid.
• Riot believes the 15% trigger is too low and conflicts with established legal and governance standards.
• Riot had previously urged Bitfarms to collaborate on adding new, independent directors and called for the resignation of Chairman Nicolas Bonta.
• Riot views the poison pill as a sign of entrenchment and disregard for shareholder perspectives.
• Riot cautions that its proposal for a business combination with Bitfarms is non-binding and there is no assurance that any definitive offer will be made or accepted.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the conflict between Riot and Bitfarms, the criticism of Bitfarms' corporate governance, and the uncertainty surrounding the potential acquisition. The adoption of the poison pill is a defensive maneuver, suggesting a lack of agreement and potential for further conflict.

Negatives

• Bitfarms adopted a shareholder rights plan (poison pill) that prevents shareholders from acquiring 15% or more of its common shares without a formal takeover bid, which Riot views as a negative.
• Riot believes the 15% trigger is too low and conflicts with established legal and governance standards.
• Riot perceives Bitfarms' actions as a sign of entrenchment and disregard for shareholder perspectives.
• Riot had privately urged Bitfarms to add new, independent directors and called for the resignation of Chairman Nicolas Bonta, indicating existing corporate governance concerns.

Risks

• There is no assurance that Riot will make a definitive offer for Bitfarms.
• There is no assurance that Bitfarms will accept any offer made by Riot.
• The proposed business combination may not be approved or consummated.
• The combined company may be unable to achieve expected synergies and operating efficiencies.
• The integration of Bitfarms' operations with those of Riot may be more difficult, time-consuming, and costly than expected.

Future Outlook

Riot will continue to push to address the serious corporate governance issues at Bitfarms and ensure that shareholders have a say on the Company's path forward. Riot cautions that its proposal for a business combination with Bitfarms is non-binding and there is no assurance that any definitive offer will be made or accepted.

Management Comments

• Jason Les, Chief Executive Officer of Riot, stated: 'We have attempted to privately engage with the Bitfarms Board and recently sent two letters urging constructive collaboration with us around the addition of at least two new directors who are fully independent of Bitfarms and Riot.'
• Jason Les also stated: 'Instead of engaging with us privately and in good faith, Bitfarms has responded by implementing an off-market Poison Pill with a trigger well below the customary 20% threshold.'
• Jason Les further stated: 'This action further demonstrates the Bitfarms Boards entrenchment and disregard for the perspectives of its shareholders, who clearly signaled their discontent less than two weeks ago when they voted out Company co-founder Emiliano Grodzki.'
• Jason Les added: 'In our most recent letter, we urged the Bitfarms Board to facilitate the resignation and removal of Chairman and interim CEO Nicolas Bonta, who has led the Bitfarms Board since 2018 and bears direct responsibility for its poor corporate governance practices, as a first step to address shareholders concerns.'

Industry Context

This announcement highlights the ongoing consolidation efforts within the Bitcoin mining industry, with Riot Platforms attempting to acquire Bitfarms. The adoption of a poison pill by Bitfarms is a defensive measure often used to thwart hostile takeovers, indicating a potential disagreement on valuation or strategic direction between the two companies.

Comparison to Industry Standards

• The 15% trigger in Bitfarms' poison pill is lower than the customary 20% threshold, as noted by Riot, and is considered shareholder-unfriendly.
• Companies like Marathon Digital Holdings and CleanSpark, which are also major players in the Bitcoin mining industry, do not currently have similar poison pill provisions in place.
• The actions of Institutional Shareholder Services Inc. and Glass, Lewis & Co. are often used as benchmarks for corporate governance standards.

Corporate Governance

Stakeholder Impact

• Shareholders of Bitfarms may be impacted by the adoption of the poison pill, which could limit their ability to sell their shares or influence the company's direction.
• Shareholders of Riot Platforms may be impacted by the potential acquisition of Bitfarms, which could affect the value of their shares.
• Employees of Bitfarms may be impacted by the potential acquisition, which could lead to changes in management or operations.

Next Steps

• Riot will continue to push to address the serious corporate governance issues at Bitfarms.
• Riot will ensure that shareholders have a say on the Company's path forward.
• Riot may file one or more registration statements, prospectuses, management information circulars, proxy statements, proxy circulars, tender offers, takeover bid circulars or other documents with the SEC and applicable Canadian securities regulatory authorities.

Key Dates