425: CleanSpark to Acquire GRIID Infrastructure in $155 Million Merger

CleanSpark, Inc. has entered into a definitive agreement to merge with GRIID Infrastructure Inc., a move aimed at expanding CleanSpark's cryptocurrency mining capabilities.

Summary

• CleanSpark, Inc. will merge with GRIID Infrastructure Inc. through a merger agreement dated June 26, 2024.
• CleanSpark's Merger Sub will merge into GRIID, with GRIID continuing as the surviving entity.
• GRIID stockholders will receive CleanSpark common stock based on an exchange ratio derived from a $155 million valuation, adjusted for GRIID's outstanding liabilities (net of cash) and potential severance obligations, divided by CleanSpark's volume-weighted average price of $16.587.
• Outstanding GRIID restricted stock units will fully vest and be converted into the right to receive merger consideration.
• Vested GRIID compensatory options will be canceled and converted into CleanSpark common stock based on the excess of merger consideration value over the option's exercise price.
• GRIID warrants will be converted into CleanSpark warrants, with adjustments to the number of shares and exercise price based on the exchange ratio.
• The merger is contingent on GRIID stockholder approval, regulatory approvals, SEC effectiveness of CleanSpark's registration statement on Form S-4, and Nasdaq listing authorization.
• CleanSpark has also provided GRIID with a $55.9 million term loan, bearing interest at 8.5% per annum, to be used for specific purposes outlined in the credit agreement.
• Concurrently, CleanSpark and GRIID entered into voting agreements with key GRIID stockholders, representing approximately 52.12% of outstanding shares, to vote in favor of the merger.
• CleanSpark and GRIID have also established a hosting agreement where GRIID will host CleanSpark's cryptocurrency mining equipment, with CleanSpark paying service fees based on operating costs and kilowatt hours consumed, plus a variable performance fee.

Sentiment

Score: 7

Explanation: The document is generally positive, outlining a strategic merger that could benefit both companies. However, it also acknowledges potential risks and uncertainties, leading to a moderate sentiment score.

Positives

• The merger allows CleanSpark to expand its cryptocurrency mining infrastructure and capabilities.
• The voting agreements with key GRIID stockholders increase the likelihood of the merger's approval.
• The hosting agreement provides CleanSpark with immediate access to GRIID's facilities for its mining equipment.
• The term loan provides GRIID with necessary capital to continue operations during the merger process.

Negatives

• GRIID's stockholders must approve the merger, introducing a risk of non-approval.
• The merger is subject to customary closing conditions, including regulatory approvals, which could delay or prevent the transaction.
• GRIID may be required to pay CleanSpark a termination fee of $1.5 million under certain circumstances, potentially reducing the value to GRIID stockholders.
• The merger's valuation is subject to adjustments based on GRIID's liabilities, which could affect the final consideration received by GRIID stockholders.

Risks

• The merger may not be completed if the closing conditions are not satisfied or waived.
• The anticipated benefits and synergies of the merger may not be fully realized.
• CleanSpark may face challenges integrating GRIID's businesses and technologies.
• The cryptocurrency market's volatility could impact the financial performance of the combined company.
• Regulatory changes and increasing difficulty rates for bitcoin mining could affect the profitability of mining operations.
• The company's ability to remediate the material weakness identified in the internal control over financial reporting included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2023

Future Outlook

The document includes forward-looking statements regarding the proposed business combination, anticipated benefits, synergies, and future financial and operating results, which are subject to various risks and uncertainties.

Management Comments

• The Board of Directors of the Company determined that this Agreement and the Transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, the Company and the holders of Company Common Stock.
• The Board of Directors of Parent determined that this Agreement and the Transactions contemplated hereby, including the issuance of the shares of common stock of Parent, par value $0.001 per share (Parent Common Stock), pursuant to this Agreement (the Parent Stock Issuance), are fair to, and in the best interests of, Parent and the holders of Parent Common Stock.

Industry Context

This announcement reflects the ongoing consolidation and strategic positioning within the cryptocurrency mining industry, as companies seek to enhance their scale, efficiency, and access to resources.

Comparison to Industry Standards

• The merger consideration of $155 million is comparable to recent acquisitions in the cryptocurrency mining sector, such as Riot Blockchain's acquisition of Bitmain's mining facility in Rockdale, Texas, for $650 million.
• The 8.5% interest rate on the term loan is within the typical range for secured debt financing in the industry, although specific rates vary based on the borrower's credit profile and market conditions.
• The hosting agreement's terms, including fees based on operating costs and kilowatt hours consumed, are standard in the colocation mining services market, similar to agreements between Core Scientific and its hosting clients.
• The termination fee of $1.5 million is a customary provision in merger agreements, designed to protect the buyer from deal disruptions, and is similar to termination fees in other comparable transactions.

Related Party Transactions

• James D. Kelly III, a director and Chief Executive Officer of GRIID, is the sole member of Griid Holdings.
• David L. Shrier serves on the board of directors of Adit EdTech and GRIID.

Stakeholder Impact

• Shareholders of GRIID will receive CleanSpark common stock, potentially benefiting from the combined company's future performance.
• Employees of both companies may experience changes as a result of the integration.
• Customers of both companies could benefit from enhanced services and capabilities.
• Suppliers and creditors may be affected by the combined company's financial strength and operational changes.

Next Steps

• GRIID will seek stockholder approval for the merger.
• CleanSpark and GRIID will file the necessary regulatory documents with the SEC.
• The companies will work to satisfy the closing conditions outlined in the merger agreement.
• CleanSpark and GRIID will work to obtain Nasdaq listing authorization for the shares of Parent Common Stock to be issued in the Merger.

Key Dates