Shares of Bitcoin (BTC-USD) miner Bitfarms (NASDAQ:BITF) (TSE:BITF) fell at the time of writing after it approved a “poison pill” strategy in order to stop a hostile takeover attempt by rival Riot Platforms (NASDAQ:RIOT), which recently disclosed that it had a 12% stake in Bitfarms.
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What Is a Poison Pill in Finance?
In finance, a poison pill is when companies increase the number of shares outstanding in order to make it more difficult to acquire. It differs from a stock split in the following way:
Stock Split:
- The main goal is to make the shares more affordable and attractive to a wider range of investors without changing the overall value of the company.
- If you own 1 share worth $100 and the company does a 2-for-1 split, you will now have 2 shares worth $50 each. You still own $100 worth of stock, but it’s now spread over more shares.
- All investors are included.
Poison Pill:
- The goal is to make the company less attractive or more difficult to acquire by a potential buyer.
- It allows existing shareholders to buy more shares at a discount or for free if a person or group tries to buy a large stake.
- The “offending” shareholder is excluded from receiving more shares.
- As a result, the takeover becomes more expensive and less appealing.
Initially, Riot made a private proposal in April, which Bitfarms’ board rejected, saying it “significantly undervalued” the company. Riot then went public with a $950 million offer in May with plans to request a special shareholder meeting to add independent directors to Bitfarms’ board.
In response, Bitfarms announced that if any entity acquires more than 15% of its stake between June 20 and September 10, it will issue new shares to dilute that entity’s stake. After September 10, this threshold increases to 20% under certain conditions. Nevertheless, it’s worth noting that the plan will require shareholder approval within six months to remain in effect.
Is It Worth Buying Crypto Stocks?
Turning to Wall Street, analysts do believe it’s worth buying the aforementioned crypto stocks. Indeed, both have Strong Buy ratings, although they expect more from RIOT stock – over 79% upside potential. This comes after a 5.08% decline in its share price over the past 12 months.
