Bitcoin mining company Bitfarms Ltd agreed to acquire Stronghold Digital Mining Inc for about US$125 million in stock while it fends off a takeover attempt by Riot Platforms Inc.

Stronghold shareholders will receive 2.52 Bitfarms shares for each share held, the companies said in a statement on Wednesday. That’s a premium of around 70% of Stronghold’s 90-day volume-weighted average price on Nasdaq as of Aug 16. The transaction includes assumed debt of about US$50 million.  

Miners mint the cryptocurrency through a process where they compete to solve computational puzzles to unlock rewards in exchange for processing the transactions on the Bitcoin blockchain. Mining companies are seeking to expand through acquisitions as the sector faces a potential revenue squeeze in the aftermath of an April update in the Bitcoin network software known as the the halving that reduced the daily awards.

Shares of Stronghold, which announced in May that it was considering the sale of the company and other alternatives, rose about 40% in pre-market trading to around US$4.21. The Kennerdell, Pennsylvania-based firm burns waste coal to generate energy to power its mining operations. The company posted a second-quarter (2Q) loss of US$21.3 million on revenue of US$19.1 million. 

Bitfarms had US$41.5 million in revenue in 2Q. The purchase should boost Bitfarms’ mining capacity by providing more access to power through Stronghold, which has its own power generation and interconnection to local grids.    

Riot, which has built a nearly 19% stake in Bitfarms, made an unsolicited, US$950 million offer to buy the company. The smaller miner rebuffed its takeover approach in April. In response to the takeover attempt, Bitfarms adopted a “poison pill” defence strategy to prevent hostile takeovers. The company scheduled a special shareholder meeting on Oct 29 after Riot sought to replace three board members with candidates it has suggested.   

Riot is one of the world’s largest Bitcoin mining companies with facilities in Texas, while Bitfarms’ operations spread across the world including South America. Castle Rock, Colorado-based Riot had US$70 million in revenue in 2Q. 

 Shares of Stronghold had dropped around 60% this year, while Bitfarms has decreased 19%. Riot has slumped 48%. Bitcoin has surged 42% during the same period.

  - Bloomberg