Bitfarms shareholders have lost confidence in their Board
At Bitfarms’ Annual General and Special Meeting of Shareholders held on May 31, 2024, Bitfarms shareholders voted by a significant margin not to re-elect director and co-founder Emiliano Grodzki to the Bitfarms Board.
Further, since Riot made its proposal public on May 28th, Riot has been contacted by numerous Bitfarms shareholders who conveyed support for fully exploring a combination between Riot and Bitfarms.
These shareholders have also expressed a lack of confidence in the ability of the current Bitfarms Board to properly oversee a strategic alternatives process, successfully set and guide Bitfarms’ priorities moving forward and, ultimately, act in the best interests of Bitfarms and all of its shareholders.
Riot is asking that Bitfarms let the views of its shareholders be heard.
Further Board change is needed
Our focus remains on fixing Bitfarms’ broken governance to enhance value for all shareholders. In order to achieve this objective, additional fresh perspectives are required in Bitfarms’ boardroom.
Since we initiated our campaign, two of Bitfarms’ three co-founders – Emiliano Grodzki and Nicolas Bonta – have resigned from the Board. Notably, Mr. Grodzki only resigned after shareholders voted not to re-elect him by a significant margin at Bitfarms’ Annual and Special Meeting of Shareholders held on May 31, 2024.
Bitfarms subsequently appointed Fanny Philip to replace Mr. Grodzki, appointed Ben Gagnon as Chief Executive Officer and a member of the Board to replace Mr. Bonta, and made other executive leadership changes.
While these changes represent a step in the right direction, they have been reactive and insufficient to address Bitfarms’ broken governance. These actions followed Riot’s sustained public pressure and would not have occurred had Riot not challenged the entrenchment of the Bitfarms Board.
Bitfarms has repeatedly botched its CEO succession process
Following approximately 13 months of attempting to meaningfully engage with Bitfarms regarding a Bitfarms announced in March that it planned to seek a replacement for its CEO and President at the time, Geoffrey Morphy, but that he would lead Bitfarms until a replacement could be identified.
Then, on May 13, Bitfarms abruptly announced Mr. Morphy had been terminated immediately after he filed a $27 million lawsuit against Bitfarms.
The sudden termination of the Bitfarms CEO without a transition plan in place at a crucial period of execution for Bitfarms and the industry, as well as the lawsuit allegations – which, if accurate, raise serious questions about whether certain directors are committed to acting in the best interests of all Bitfarms shareholders – represent a dangerous failure of leadership by the current Bitfarms Board.
This was not an isolated occurrence: Mr. Morphy was the third of Bitfarms' now five CEOs in five years. The ability to effectively identify, recruit and oversee a CEO is a fundamental duty of a board, and is essential to a well-functioning company’s performance.
Concerning Stronghold acquisition announcement
Shareholders should seriously question the timing of Bitfarms’ announcement of its agreement to acquire Stronghold, notwithstanding the pending Special Meeting, and the price that it was willing to pay.
The US$175 million transaction (including US$50 million of assumed debt) represents a greater than 100% premium to Stronghold’s closing share price on the day prior to the announcement, which greatly exceeds the premium of precedent all-stock transactions in which sellers participate in any potential upside.
Moreover, while announced as a “highly accretive” transaction with “compelling economics,” shareholders have not yet been provided an estimate of capital expenditures that will be required to fund the development of Stronghold’s sites.
These points are especially troubling given that Stronghold was effectively “for sale” for a significant period of time, with its strategic review process publicly announced earlier this year, and clearly no other participant in the sector was willing to pay such an inflated price.
As Bitfarms’ largest shareholder, we are concerned that the Board did not enter into this transaction with the best interests of Bitfarms’ shareholders in mind.
Bitfarms Board has been unwilling to engage constructively with Riot and has pursued entrenchment tactics
Following approximately 13 months of attempting to meaningfully engage with Bitfarms regarding a potential combination of Bitfarms and Riot, Riot delivered a private acquisition proposal to the Bitfarms Board on April 22, 2024.
After providing no constructive response, despite repeated follow up by Riot, the Bitfarms Board demanded that Riot sign a confidentiality agreement that included an excessive and off-market standstill of more than three years and, soon after, advised that the offer was too low, without any guidance as to what terms it would consider acceptable, or any other commentary.
Since then, Riot has made multiple attempts to work constructively with Bitfarms toward a mutually beneficial combination. Instead of engaging in good faith around a Board refresh and/or a potential combination, Bitfarms responded by implementing a shareholder rights plan – or “poison pill” – with a 15% trigger that is well below the customary 20% threshold and that was rightfully invalidated and cease traded by the Ontario Securities Commission.
Even after the adoption of the off-market poison pill, Riot offered the Bitfarms Board an opportunity to avoid the Special Meeting by jointly refreshing the Bitfarms Board. Instead, Bitfarms unilaterally made a change to the Board, announcing on June 27, 2024 the appointment of Fanny Philip as a director.
Bitfarms chose to make this appointment without consulting Riot, its largest shareholder, even though the Board knew that we had proposed a slate of highly qualified director nominees and specifically asked that we be consulted before any Board changes were made.
