By Michael Scott
Hut 8 Mining shares price declined days after the major consolidation. Shares of the Nasdaq-listed Bitcoin miner declined by 9% on Tuesday to exchange hands at CAD $2.17. The slump occurred shortly after the firm’s agreed to merge with Bitcoin Corp.
Hut 8 Leading Consolidation in Mining Segment
The deal is a major consolidation move in the bitcoin mining industry. The constituent firms are scheduled to become wholly owned subsidiary of the newly established entity Hut 8 Corp.
Shareholders of the two constituents would each command 50% stale in the new entity. The joint press release conveyed the ownership structure on Tuesday, February 7.
The deal would see Toronto-based Hut 8’s shares converted into five-to-one in the newly formed enterprise. The newly formed Hot 8 Corp will have an estimated 825 MW energy capacity.
The move echoes the mining segment move as battered miners pursue acquisitions to expand operations. While several miners have portrayed acquisition spree of sites and rigs, the bear market has plunged others into a bankruptcy filing. In particular, Core Scientific (CORZ) sought bankruptcy protection citing a market meltdown.
Improving Balance Sheet and Access to Cheap Partner
The merger will ease Hut 8 Corp’s access to cheap energy under the existing arrangement of Bitcoin Corp (USBTC). On the other hand, USBTC is securing a partner with a solid balance sheet.
Explaining the merger, a USBTC executive explained that the firm would have broader access to capital and the possibility of its inclusion in the US indexes. The press release outlined that the merger is diversifying the distribution of its mining facilities across North America.
Hut 8 chief executive Jaime Leverton lauded the merger transaction as gifting the firm opportunity to leverage the unencumbered Bitcoin stack it has desired for a long. She added that the miner would dispose of several mined Bitcoin to settle interim financial requirements.
The firm is among the few mining facilities that held mined bitcoins during the bearish crypto market. By the end of 2022, Hot 8 will have 9086 BTC amassed with a market value exceeding $200 million.
Scouting for Profitable Business Model
Hut 8 is set to facilitate secure bridge financing, approximated at $6.5 million to fund USBTC relative to the conclusion of the definitive loan documentation.
The merger would offer USBTC a solution to the controversial Niagara Falls In New York facility that has recently attracted scrutiny at the municipality level for noise complaints. The merger transaction is timely when the firm is scouting for a new profitable business model to manage its mining sites.
Recently, USBTC announced the successful acquisition of a Texas-based site from bankrupt Compute North. The site located within King Mountain has an estimated capacity of 220 MW. Besides, USBTC runs two huge facilities on behalf of Compute North.
The mining facilities at Granbury in Texas and Kearney in Nebraska have a combined energy capacity of 400 MW. Recently the facilities were bought by Generate Capital investment firm. The deal saw Compute North change its name to Mining Project Wind Down Holdings as the bankruptcy process advanced.
The newly formed company is set to take over Hut 8’s 109 MW Canadian mining capacity in Alberta. The firm’s head of communication and culture affairs, Erin Dermer, indicated that the merger is set to give the new entity economies of scale.
Post Merger Reorganization of Management
The joint statement from the two constituent firms indicated that Leverton would steer the new entity. Shenif Visram would assume the chief financial officer role.
The USBTC duo comprising Asher Genoot and Michael Ho are set to assume president and chief strategy officer roles, respectively. Bill Tai is set to chair Hot 8 Corp.
The merger deal has received unanimous approval. Nonetheless, the merger awaits the court and equity holders to approve the pending deal. Still, Leverton confirmed to investors via a call that the firms project to close the deal by the second quarter of 2023.
The equity holders would likely approve the merger transaction since the constituent firms would realize a viable business model to run and manage mining facilities.