Shares of Hut 8 Mining (HUT) slid 9% on Nasdaq Tuesday, closing at $2.17, after the bitcoin mining firm said it agreed to merge with U.S. Bitcoin Corp.
The two firms will become wholly owned subsidiaries of the newly formed Hut 8 Corp. Shareholders of the two will each own about 50% of the merged company, they said in a Tuesday press release. The deal will have existing shares of Toronto-based Hut 8 consolidated five-to-one in the new company, which will have access to about 825 megawatts (MW) of energy capacity.
The industry has been consolidating as last year's bear market battered miners, leading to acquisition opportunities. While some miners have been able to buy new mining rigs and sites on sale, others such as Core Scientific (CORZ) have been forced to file for bankruptcy protection.
Hut 8 will gain access to hundreds of megawatts of cheap energy through the merger, while U.S. Bitcoin Corp., known as USBTC, gains a partner with a strong balance sheet. The merger will give the new U.S.-based company access to capital and the possibility of being including in indexes in the U.S., while also diversifying the geographic distribution of mining sites across North America, the press release said.
"This transaction has given us the opportunity to leverage the significant, unencumbered bitcoin stack we have HODLed to date," said Hut 8 CEO Jaime Leverton, adding that the firm will be selling a portion of its mined bitcoin to fund operations in the interim period. The firm has been one of a few miners to continue holding on to its mined digital assets through the market downturn, amassing 9,086 BTC ($209 million) as of the end of 2022.
Hut 8 will provide secured bridge financing of as much as $6.5 million to USBTC, subject to the completion of definitive loan documentation.
USBTC operates a facility in Niagara Falls, New York, that has attracted controversy on the municipal level due to noise complaints. The firm is touting a new business model of profiting from managing mining sites. USBTC acquired a site with 220 MW of hosting capacity from bankrupt firm Compute North in King Mountain, Texas, through a joint venture with a "leading energy partner."
USBTC also manages two large Compute North Facilities in Kearny, Nebraska, and Granbury, Texas, totaling 400 MW of energy capacity, which were acquired by investment firm Generate Capital. Compute North has changed its name to Mining Project Wind Down Holdings as part of the bankruptcy process.
Hut 8 had 109 MW of mining capacity in Alberta, Canada, as of the end of 2022, said Erin Dermer, the firm's senior vice president of culture and communications.
Leverton will lead the new entity and her colleague Shenif Visram will be chief financial officer. From USBTC, Asher Genoot will be president and Michael Ho chief strategy officer. Hut 8's Bill Tai will be chairman.
While the boards of the two firms have both unanimously approved the deal, equity holders and court approval are still pending. The companies hope to close the deal by the end of the second quarter, Leverton said in a Tuesday call with investors.
UPDATE (Feb. 7, 2023 12:26 UTC): Adds leadership, financing starting in fifth paragraph.
UPDATE (Feb. 7, 15:40 UTC): Adds shares in first paragraph, consolidation detail in second paragraph, context in third and fourth paragraph, mining sites in seventh and eighth paragraphs.
UPDATE (Feb. 8, 9:02 UTC): Adds end-of-day stock movement in first paragraph, clarifies former Compute North mining sites' energy capacities.
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