A crypto mining company wasn’t justified in adopting an anti-takeover defence triggered below the basic threshold of a prospective buyer building a 20% stake in a target company, Ontario’s Capital Markets Tribunal ruled.
The decision came in response to an application from Riot Platforms Inc., a Bitcoin mining company which sought an order cease trading a shareholder rights plan that was adopted by another Bitcoin miner, Bitfarms Ltd. That was in response to Riot pursuing a possible takeover of Bitfarms.
According to the tribunal’s decision, Bitfarms set the trigger for the plan at 15% — meaning that the plan would take effect when a prospective buyer built up a stake in the company that crossed the 15% mark. Bitfarms adopted its shareholder rights plan in June.
At that point, existing shareholders would be entitled to purchase more shares in the company at half price, making a potential takeover much costlier.
Riot asked the tribunal to cease trade Bitfarms’ plan, arguing that the 15% trigger adopted by the company was well below the 20% threshold set out in the takeover rules. According to the tribunal, Riot didn’t argue that the plan violated securities law, instead it sought a cease trade order based on the plan contravening the public interest.
The tribunal sided with Riot, concluding that, “the Bitfarms plan’s 15% trigger undermined, in a real and substantial way, and with public effect, animating principles that underlie the take-over bid regime.” The tribunal also found that there weren’t any exceptional circumstances that would justify allowing the plan to remain in effect.
Among other things, the tribunal found that the takeover bid regime is largely structured around the 20% threshold, and that if it accepted the 15% trigger in this case, that decision would have possible consequences for future takeover fights.
“In our view, if an issuer were to prevent a market participant from continuing to accumulate shares freely up to the 20% threshold, that would be a significant departure from long-established market expectations,” the decision said.
“It would greatly alter the dynamics of share accumulation by giving the issuer power to influence this process outside of the take-over bid context, it might remove a willing buyer from the trading environment and it would affect the interests of all shareholders by failing to treat shareholders equally,” it noted. “We agree with the commission that, in general, permitting this to occur could negatively affect the capital markets, including by reducing their efficiency.”
It also rejected the argument that there were special circumstances in this case justifying a plan that deviated from the 20% threshold.
According to the decision, Bitfarms argued that Riot was an “aggressive” potential buyer, that it refused to participate in Bitfarms’ strategic alternative review process and that it made “aggressive public allegations about the governance practices of Bitfarms,” among other claims.
However, the tribunal found that none of this created exceptional circumstances.
“Buyers are entitled to engage in rapid and strategic stock accumulation below the 20% bid threshold, as long as they comply with applicable securities laws,” it said. “Similarly, buyers are entitled to decide whether to participate in a target’s auction or strategic alternative processes and whether to issue public commentary on the governance practices of the companies in which they invest.”
Ultimately, the tribunal concluded that it was in the public interest to cease trade the Bitfarms plan.