Bitfarms to acquire Stronghold in strategic merger

TORONTO, Ontario - Bitfarms Ltd. (NASDAQ/TSX: BITF), a prominent Bitcoin data center company, has announced a definitive merger agreement with Stronghold Digital Mining, Inc. (NASDAQ: SDIG). The stock-for-stock transaction, valued at approximately $125 million in equity and the assumption of $50 million in debt, is expected to close in the first quarter of 2025, subject to shareholder and regulatory approvals.

The merger is set to significantly expand Bitfarms' energy capacity, adding 307 MW, which includes Stronghold's current 165 MW of generated power and 142 MW of Pennsylvania-New Jersey-Maryland Interconnection (PJM) import capacity. With potential fleet upgrades, Stronghold's hashrate could increase to approximately 10 EH/s in 2025. This acquisition aligns with Bitfarms' strategic plan to boost its energy portfolio to over 950 MW by the end of 2025, with around 50% based in the U.S.

Bitfarms CEO Ben Gagnon expressed the company's commitment to diversifying beyond Bitcoin mining to enhance long-term shareholder value. The merger also advances Bitfarms' environmental efforts, as Stronghold has reclaimed thousands of acres of toxic waste and has potential carbon capture projects that could annually capture over 60,000 tons of CO2.

Gregory Beard, CEO and Chairman of Stronghold, endorsed the merger, citing Bitfarms' operational expertise and the opportunity for Stronghold shareholders to share in the combined company's growth.

The merger is expected to yield about $10 million in annual run-rate cost synergies. Stronghold shareholders will receive 2.52 shares of Bitfarms for each share of Stronghold they own, equating to $6.02 per share—a 71% premium based on Stronghold's 90-day volume-weighted average price as of August 16, 2024.

Upon completion, Stronghold shareholders will own just under 10% of the merged entity. Mr. Beard will join the combined company in an advisory role.

Investors can join a conference call hosted by both companies today at 8:30 AM ET to discuss the transaction details.

This merger is an essential milestone for Bitfarms, as it seeks to enhance its position in the Bitcoin mining industry and expand its energy capabilities. The information for this article is based on a press release statement.

In other recent news, Stronghold Digital Mining Inc. has announced that it is exploring strategic alternatives, including potential sales, mergers, and expansions, in a bid to enhance shareholder value. The company reported a GAAP net loss of $21.3 million and an adjusted EBITDA of negative $0.3 million during its second-quarter earnings call. Despite this, the company highlighted positive developments, such as an increase in waste coal tax credits and capacity market auction results, which could lead to significant future revenue boosts.

These recent developments, including a potential increase in revenue from capacity payments estimated at $7 million and a doubling of waste coal tax credits in Pennsylvania, could add between $2 million and $4 million per year to Stronghold's cash flow starting in 2025. Furthermore, the company is considering data center opportunities and has engaged Appleby Strategy Group to explore this possibility.

Stronghold is also assessing the timing for potential expansion and site development of its assets. The company's significant land ownership and access to power, fiber, and water enhance prospects for data center development. However, it's worth noting that the company's second-quarter results showed a significant net loss and a negative adjusted EBITDA. The earnings call did not provide a Q&A session, hence no highlights from questions and answers are available.

InvestingPro Insights

As Bitfarms Ltd. moves forward with its definitive merger agreement with Stronghold Digital Mining, Inc., investors are keenly observing Stronghold's financial health and market performance. Stronghold, with a current market capitalization of $49.48 million, appears to be navigating challenging financial waters. The company's P/E ratio stands at -1.17, reflecting its unprofitability in the recent quarters. This is further substantiated by the company's negative revenue growth of -0.59% over the last twelve months as of Q2 2024. Despite a marginal quarterly revenue growth of 4.77% in Q2 2024, Stronghold's operating income margin remains deeply negative at -50.75%, indicating significant operational losses.

InvestingPro Tips highlight several areas of concern for Stronghold, including a significant debt burden and a rapid cash burn rate. The company's short-term obligations outweigh its liquid assets, suggesting potential liquidity risks. Additionally, analysts do not expect Stronghold to be profitable this year, and the stock has experienced considerable price volatility, with a 28.01% decline over the last month and a sharp 59.86% drop year-to-date as of the latest data. These factors are critical for investors to consider as they evaluate the merger's potential impact on Bitfarms' future financial stability and growth prospects.

For those seeking a deeper analysis of Stronghold Digital Mining, Inc., InvestingPro offers a comprehensive list of additional tips, providing valuable insights into the company's financial health and market expectations. To explore the full range of InvestingPro Tips, visit https://www.investing.com/pro/SDIG.

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