What's happening?
Shares of Riot Blockchain (RIOT 10.13%) are up 15% as of 12:00 p.m. EST after the company announced it raised a fresh round of capital by selling stock and warrants in a private placement. A capital raise gives Riot Blockchain some semblance of legitimacy as it takes heat from high-profile short-sellers, including Andrew Left of Citron Research.
So what
Riot Blockchain announced agreements to sell approximately 1.64 million units to investors for $22.50 each. Each unit entitles the buyer to one share of Riot Blockchain, plus one three-year warrant for one share of stock that can be exercised at a price of $40 per share. Warrants are similar to long-dated call options in that they allow investors to acquire shares of a company at a later time at a set price.
Image source: Getty Images.
Riot's raise comes at a deep discount to closing prices on Dec. 18, 2017. We can roughly triangulate the value of each unit it sold based on closing prices for its common stock and June 2018 calls at a $40 strike, which (very) roughly approximate the value of a three-year warrant.
The table below shows my calculations.
|
Security or Derivative |
Value as of Dec. 18 Close |
|---|---|
|
Common stock |
$36.47 |
|
June 2018 calls at $40 strike |
$7.50 |
|
Approximate value of Riot units |
$43.97 |
Source: Author calculations.
Now what
In ordinary markets, investors might be disappointed that a company is raising money by selling units worth approximately $44 each for $22.50, before any fees it pays to its investment bankers. Of course, bitcoin stocks seem to operate in some new world where any news is interpreted as good news.
Riot Blockchain said the proceeds would be used for the expansion of its bitcoin mining operations, strategic investments, and general working capital. Riot currently owns 1,200 bitcoin mining rigs. Among other investments, Riot Blockchain also owns stakes in Coinsquare, an online bitcoin exchange, and Verady, a company that provides audit and accounting services for cryptocurrency assets.
