Novogratz’s Galaxy Digital backs out of $1.2 billion deal to buy BitGo

abdelaziz Fathi

Crypto merchant bank Galaxy Digital would not move forward with its bid to buy digital-asset custodian BitGo.

Mike Novogratz

The takeover saga took a new turn after Galaxy Digital has exercised its right to terminate the acquisition agreement with BitGo.  The company attributes its decision to BitGo’s failure to deliver, by July 31, 2022, audited financial statements for 2021.

According to the company’s executive, Mike Novogratz, that was one of the $1.2 billion deal’s requirements, so no termination fee is payable in connection with the termination.

“Galaxy remains positioned for success and to take advantage of strategic opportunities to grow in a sustainable manner. We are committed to continuing our process to list in the U.S. and providing our clients with a prime solution that truly makes Galaxy a one-stop shop for institutions,” said Mike Novogratz, CEO and Founder of Galaxy.

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.

More specifically, the transaction was planned to close immediately following “the domestication of Galaxy Digital as a Delaware corporation.” This move was subject to approval by the company’s shareholders as well as other acquisition-related closing conditions and regulatory approvals.

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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