Shares in Bitcoin Miner Hut 8 Slump on Merger with US Bitcoin Corp.
Shares of Hut 8 Mining (HUT) fell 9% on the Nasdaq on Tuesday, ending at $2.17, after the bitcoin miner said it agreed to merge with US Bitcoin Corp.
The two companies will become wholly owned subsidiaries of the newly formed Hut 8 Corp. The shareholders of the two will each own about 50% of the merged company, they said in a press release on Tuesday. The deal will see existing shares in 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 consolidated like last year’s miners in the bear market, which has led to acquisition opportunities. While some miners have been able to buy new mining rigs and sites on sale, others like 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 US Bitcoin Corp., known as USBTC, will gain a partner with a strong balance sheet. The merger will give the new US-based company access to capital and the opportunity to be included in indices in the US, while diversifying the geographical distribution of mining facilities across North America, the press release states.
“This transaction has given us the opportunity to leverage the significant unencumbered bitcoin stack we have HODLed to date,” Hut 8 CEO Jaime Leverton said, adding that the firm will sell a portion of its mined bitcoin to fund operations in the interim period. The firm has been one of the few miners that has continued to hold onto its mined digital assets through the market downturn, amassing 9,086 BTC ($209 million) by the end of 2022.
Hut 8 will provide secured bridge financing of as much as $6.5 million to USBTC, subject to completion of final loan documentation.
The USBTC operates a facility in Niagara Falls, New York, which has attracted controversy at the municipal level due to noise complaints. The firm is launching a new business model to profit from managing mining facilities. 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, by the end of 2022, said Erin Dermer, the company’s senior vice president of culture and communications.
Leverton will lead the new unit and her colleague Shenif Visram will be CFO. From USBTC, Asher Genoot will be president and Michael Ho will be chief strategy officer. Bill Tai from Hut 8 will be chairman.
While the boards of the two companies have both unanimously approved the agreement, shareholders and legal approval are still awaited. The companies hope to close the deal by the end of the second quarter, Leverton said in a Tuesday call with investors.
UPDATE (February 7, 2023 12:26 UTC): Adds management, financing starts in the fifth paragraph.
UPDATE (February 7, 15:40 UTC): Adds shares in the first paragraph, consolidation details in the second paragraph, context in the third and fourth paragraphs, mining sites in the seventh and eighth paragraphs.
UPDATE (February 8, 9:02 UTC): Adds end-of-day inventory movement in first tier, clears former Compute North mining facility energy capacity.
