Details the Need for Further Change at Bitfarms in Order to Fix Broken Governance and Enhance Value for All Shareholders
Reduces Proposed Slate of New Directors From Three to Two in Light of Bitfarms’ Recent Moves in Response to Public Pressure from Riot
Warns Bitfarms Not to Take Any Additional Actions to Entrench the Existing Board Prior to the October 29 Special Meeting
Dear Fellow Bitfarms Shareholders,
Riot currently owns approximately 19.9% of Bitfarms, making us Bitfarms’ largest shareholder. As we approach the October 29 special meeting of Bitfarms’ shareholders (the “Special Meeting”), we want to share our perspectives on the recent actions taken by Bitfarms, including changes to its Board of Directors (the “Bitfarms Board”) and the proposed acquisition of Stronghold Digital Mining, Inc. (“Stronghold”). We also want to provide an update on our campaign to bring urgently needed change to the Bitfarms Board.
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 Bitfarms Board. Notably, Mr. Grodzki only resigned after shareholders voted not to re-elect him by a significant margin at Bitfarms’ May 31, 2024 annual and special meeting of shareholders. Bitfarms subsequently appointed Fanny Philip to replace Mr. Grodzki, appointed Ben Gagnon as Chief Executive Officer and a member of the Bitfarms 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. The evidence is clear: Bitfarms needs additional truly independent directors with the experience and expertise to ensure that decisions about the Company’s strategy moving forward reflect what is best for all shareholders – not just what is best for legacy directors whose focus is maintaining their own positions.
Consider the following examples of the Bitfarms Board’s defensive posture and prioritizing entrenchment over engagement:
Bitfarms’ failed off-market poison pill: The unilateral adoption of a shareholder rights plan (the “Poison Pill”) with a 15% threshold ran counter to established legal and governance standards. This entrenching Poison Pill was rightfully invalidated and cease traded by the Ontario Capital Markets Tribunal in response to Riot’s application. Had Riot not acted, the Poison Pill would have prejudiced all Bitfarms’ shareholders and set a damaging precedent for the Canadian capital markets. The Bitfarms Board knew better but disregarded these concerns.
A unilateral Board refresh: On June 27, 2024, Bitfarms announced the addition of Fanny Philip to the Bitfarms Board. Bitfarms chose to make this appointment without consulting Riot, its largest shareholder, even though the Bitfarms 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.
The 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 premiums 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 Bitfarms Board did not enter into this transaction with the best interests of Bitfarms’ shareholders in mind. Based on the transaction terms, the Stronghold acquisition appears to be yet another action designed to entrench the Bitfarms Board.
A continued lack of engagement with Riot: We have still seen no change in posture from the Bitfarms Board regarding its willingness to work constructively with Riot to consider beneficial changes to the Bitfarms Board and/or a mutually beneficial combination that could maximize value for all Bitfarms shareholders.
The Path Forward – Electing Riot’s Nominees
Previously, we announced that we would nominate three independent and highly qualified nominees for election to the Bitfarms Board at the Special Meeting. With the resignations of Messrs. Bonta and Grodzki, our campaign to fix Bitfarms’ broken governance has already resulted in progress towards addressing the founder-led culture that we believe has been harmful to the Bitfarms Board.
As a result, we will be reducing our proposed slate of new directors from three to two – Amy Freedman and John Delaney (the “Nominees”). Both Nominees are fully independent of Riot and Bitfarms and will bring much needed public company board experience, corporate governance oversight, transaction experience and business expertise to the Bitfarms Board. We will be running the Nominees to replace two Bitfarms directors: co-founder Andres Finkielsztain and Fanny Philip. In particular, Mr. Finkielsztain, as one of the three co-founders, bears responsibility for, among other things, Bitfarms’ botched CEO succession process that led to it having five CEOs in five years.
Bitfarms Needs to Halt its Defensive Tactics and Let Shareholders Be Heard
With the Special Meeting less than two months away, we sincerely hope that Bitfarms will allow its shareholders to have their say, and will not seek to take any steps that adversely affect investors or that are intended to gain an unfair advantage in the director election. Specifically, the Bitfarms Board should not enter into any financing transaction prior to the completion of the Special Meeting. Riot is deeply concerned that any transaction the current Bitfarms Board will pursue will be punitively dilutive to all Bitfarms’ shareholders when there are other more attractive financing options available. If the Bitfarms Board insists on taking any such action to further entrench itself at the expense of shareholders, Riot will not hesitate to hold the incumbent directors personally accountable.
We look forward to mailing our solicitation materials and giving shareholders a chance to vote for our two Nominees in the near future. We are confident that, together, we can help ensure a Better Bitfarms moving forward.
Yours sincerely,
Benjamin Yi, Executive Chairman
Jason Les, Chief Executive Officer
Source:
Comments