425: Bitfarms to Acquire Stronghold Digital Mining in $125 Million Stock-for-Stock Merger

Bitfarms will acquire Stronghold Digital Mining in a stock-for-stock merger transaction valued at approximately US$125 million equity value plus the assumption of debt valued at approximately US$50 million, expanding Bitfarms' energy portfolio and hashrate.

Summary

• Bitfarms and Stronghold Digital Mining have entered into a definitive merger agreement.
• Bitfarms will acquire Stronghold in a stock-for-stock transaction valued at approximately $125 million plus the assumption of approximately $50 million in debt.
• Stronghold shareholders will receive 2.52 shares of Bitfarms for each Stronghold share, representing $6.02 per share and a 71% premium to the 90-day volume-weighted average price as of August 16, 2024.
• Stronghold shareholders are expected to own just under 10% of the combined company.
• The transaction is expected to close in the first quarter of 2025, subject to shareholder and regulatory approvals.
• The combined company anticipates $10 million in annual run-rate cost synergies.
• The acquisition will expand and rebalance Bitfarms' energy portfolio to 950 MW with nearly 50% in the U.S. by the end of 2025.
• The combined company will have multi-year expansion capacity up to 1.6 GW with approximately 66% in the U.S.
• Stronghold has a hashrate of 4.0 EH/s and 165 MW of current nameplate generated power capacity, with the potential to reach approximately 10 EH/s in 2025 with fleet upgrades.
• Stronghold has 142 MW of current PJM import capacity and a path to import as much as 790 MW of incremental potential power beyond 2025.
• Stronghold owns over 750 acres of land with options on over 1,100 additional acres and two merchant power plants.
• The transaction could add up to 307 MW of power capacity.
• Stronghold's Carbon Capture Projects have the potential to capture over 60,000 tons of carbon dioxide annually.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic benefits of the merger, the premium offered to Stronghold shareholders, and the anticipated synergies and growth opportunities for the combined company. The emphasis on environmental benefits and sustainability also contributes to the positive outlook.

Positives

• The acquisition provides Bitfarms with a clear path to 950 MW active power capacity.
• The acquisition adds 4.0 EH/s to Bitfarms' hashrate with expansion capacity of potentially over 10 EH/s with fleet refresh.
• Bitfarms vertically integrates into power generation with 165 MW of nameplate generated power capacity.
• Bitfarms adds 142 MW of PJM import capacity with long term expansion potential up to 790 MW.
• The transaction is expected to result in $10 million in annual run-rate cost synergies.
• Stronghold's Carbon Capture Projects have the potential to capture over 60,000 tons of carbon dioxide annually, providing Bitfarms additional revenue.

Negatives

• The transaction is subject to shareholder and regulatory approvals, and may not close on the anticipated timeline or at all.
• Potential litigation relating to the Merger could be instituted against Stronghold, Bitfarms or their respective directors or officers.
• The effect of the announcement or pendency of the Merger on Strongholds business relationships, operating results and business generally.
• Risks related to diverting managements attention from Strongholds ongoing business operations.

Risks

• The merger may not be completed on anticipated terms or at all, affecting Stronghold's business and stock price.
• Failure to obtain stockholder and regulatory approvals could prevent the merger.
• Litigation related to the merger could impact Stronghold and Bitfarms.
• The merger agreement could be terminated, potentially requiring Stronghold to pay a termination fee.
• The merger could disrupt Stronghold's business relationships and operations.
• Retaining key personnel and maintaining business relationships may be challenging.
• Management's attention may be diverted from ongoing business operations.
• Restrictions during the merger pendency may limit Stronghold's business opportunities.
• The merger may be more expensive than anticipated.
• Environmental cost and regulatory penalties due to the operation of the Stronghold plants which entail environmental risk.

Future Outlook

Bitfarms expects to expand and rebalance its energy portfolio to 950 MW with nearly 50% in the U.S. by the end of 2025 and have visibility on multi-year expansion capacity up to 1.6 GW with approximately 66% in the U.S. The combined company aims to leverage Bitfarms' expertise to enhance energy efficiency and hashrate, and merge HPC/AI with Bitcoin mining operations.

Management Comments

• Ben Gagnon, Chief Executive Officer of Bitfarms, said, 'After three years of ongoing discussions, I am proud to announce this transformative acquisition, which is a decisive step in securing a strong future for Bitfarms.'
• Arnold Lee, Director of Sustainability at Bitfarms, said, 'Stronghold has reclaimed thousands of acres of toxic waste, reducing the environmental footprint of historical mining activities and eliminating acid mine drainage that has been contaminating U.S. waterways since the 1800s. Additionally, Strongholds Carbon Capture Projects have the potential to capture over 60,000 tons of carbon dioxide annually, providing Bitfarms additional revenue and making it one of the largest potential carbon capture projects globally.'
• Gregory Beard, Chief Executive Officer, President and Chairman of Stronghold, said, 'We have been in conversation with Bitfarms for a long time. Having received and reviewed numerous bids in our Strategic Alternatives Review process, we believe that we found the ideal partner.'

Industry Context

This acquisition reflects a trend of consolidation in the Bitcoin mining industry, with companies seeking to increase scale, diversify energy sources, and enhance operational efficiencies. Vertically integrating into power generation and expanding into HPC/AI are strategies to create long-term shareholder value beyond Bitcoin mining.

Comparison to Industry Standards

• Bitfarms' acquisition of Stronghold is similar to other mergers in the Bitcoin mining industry, such as Riot Blockchain's acquisition of Whinstone US, which aimed to increase hashrate and power capacity.
• The focus on environmentally beneficial operations aligns with the growing emphasis on sustainable mining practices, as seen with companies like Marathon Digital Holdings investing in renewable energy sources.
• The pursuit of carbon capture projects is comparable to initiatives by companies like Crusoe Energy Systems, which are focused on reducing emissions from energy-intensive operations.

Stakeholder Impact

• Stronghold shareholders will receive a premium for their shares.
• The combined company aims to create greater long-term shareholder value.
• The acquisition is expected to benefit local communities by reclaiming blighted land.
• The transaction could lead to job creation and economic development in the regions where the companies operate.

Next Steps

• Stronghold will seek shareholder approval for the transaction.
• The companies will pursue applicable regulatory approvals.
• The transaction is expected to close in the first quarter of 2025.
• Mr. Beard will contribute to the combined company in an advisory capacity.

Key Dates