BitGo takes Mike Novogratz to court for scrapping takeover deal

abdelaziz Fathi

BitGo is seeking about $100 million worth of damages from Mike Novogratz’s crypto investment firm Galaxy Digital for pulling out of a deal to acquire the institutional crypto custody firm.

Mike Novogratz

The move comes barely a month after Galaxy Digital terminated its proposal to acquire BitGo for $1.2 billion. The firm, run by billionaire Mike Novogratz, has exercised its right to terminate the acquisition agreement, citing BitGo’s failure to deliver, by July 31, 2022, audited financial statements for 2021.

According to the company’s executive, that was one of the takeover deal’s requirements, so no termination fee is payable in connection with the termination.

However, BitGo is now seeking damages because the merger agreement was not scheduled to expire until the end of this year. It has filed the lawsuit in Delaware’s Chancery Court and hired law firm Quinn Emanuel to sue Galaxy Digital.

“Late yesterday, BitGo filed a lawsuit against Galaxy Digital seeking damages of more than $100 million arising from Galaxy’s improper repudiation and intentional breach of its merger agreement with BitGo,” the firm tweeted today.

Back in April, Galaxy and BitGo renegotiated the acquisition agreement they signed back in May 2021. While the deal was originally planned to complete in the first quarter of 2022, Novogratz said at the time he expects to finalize the takeover at a later date.

Key changes were made to the financial terms of the deal. The terminated acquisition terms would have seen BitGo shareholders receive 44.8 million newly issued Galaxy shares and $265 million in cash. However, the updated terms included a hefty fine of $100 million should Galaxy Digital fail to finish up the acquisition by December 31.

Galaxy struggles with weak financials

Although BitGo holders were said to own 12% of the combined company versus 10% to settle the original deal, the implied value was virtually unchanged from the $1.2 billion announced in 2021. Galaxy’s share price, which trades in Toronto, has slipped since then to trade at $8 from around $30 when the firms originally signed the deal.

In the release, Galaxy said it plans to re-organize and relocate its corporate domicile to the US in anticipation of a Nasdaq listing. The crypto merchant anticipates the domestication to take place between Q3 and Q4 of 2022, subject to the ongoing SEC review process.

Michael Novogratz, a former Goldman Sachs macro trader, launched Galaxy Digital in November 2017 and contributed $300 million of his own assets just a month before bitcoin peaked near $20,000. He also worked previously as CIO of Fortress Investment Group’s macro fund.

In its latest financial disclosure, the New York-based firm reported a second-quarter net loss of $554.7 million, which was more than triple the loss from the same period last year. This figure includes unrealized losses on crypto holdings which were caused by weak trading volumes and losing trades.

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