Cold feet or breach of contract? A look at the Galaxy Bitgo situation

Cold feet or breach of contract? A look at the Galaxy Bitgo situation

After Galaxy Digital announced at the beginning of this week that it had terminated an agreement to assume the crypto attitude company Bitgo, industry observers said that both companies would probably try to avoid a chaotic legal dispute.

The crypto trading bench Galaxy announced on Monday that it will be returning from its agreement to buy Bitgo and claims that the company had failed to submit a certified annual financial statements by July 31.

Bitgo countered with the commissioning of the law firm Quinn Emanuel, which claimed that the law firm had already submitted the necessary documents.

"Bitgo's business remains as strong as ever," said R. Brian Timmons, partner of the law firm Quinn Emanuel, block works in an email. "Galaxy is the one who came across regulatory headwind ... it was hit by the Luna Controvers."

Although Timmons previously said that Bitgo owes a termination fee of $ 100 million or beyond damage, Quinn Emanuel has not yet filed a lawsuit against Galaxy. A Bitgo spokesman rejected a statement.

Donald Putnam, managing partner and co -founder of the advisory company Grail Partners for fusions and takeover (M&A), called Quinn Emanuel a "fighting dog company".

It is the same company that represents Elon Musk who tries to withdraw his takeover of Twitter in a process that is scheduled to begin in October. also represented ripplabs when a 175-million-dollar-fall The Tetragon Financial Group has been strained in front of the Delaware Chancer Court - an attempt to regain an investment after the SEC complaint. It also worked with other digital asset platforms in affairs in connection with federal securities laws.

"You are aggressive, quarreling and often and hard bite," said Putnam. "Normal law firms are not up to you, so you can expect buyers to hire an equally strong gladiator law firm."

A Galaxy spokesman said Blockworks at the beginning of this week that "we would defend ourselves vigorously", but rejected it.

Cold feet or breach of contract?

Galaxy announced his intention to take over Bitgo in a bar and stock transaction worth around $ 1.2 billion in May 2021. The company planned to become a company based in Delaware after the takeover and to write down on the Nasdaq.

Galaxy said on Monday that it is still intentional to go to the stock exchange. The annual financial statements, of which Galaxy claims that Bitgo did not submit them in time, are required for the submission to the SEC, said a Galaxy spokesman.

The deal had already been delayed. On April 1, the companies announced that the updated cash and equity deal was worth $ 265 million and 44.8 million new shares. Galaxy would have to pay $ 100 million "under certain circumstances" if the sale does not come about until the end of the year, it was said at the time.

Timmons said this week that Bitgo had only extended the deal because Galaxy agreed to pay the potential termination fee and added that other interested parties had it.

"It is not really clear whether the buyer gets cold feet or whether there is a real problem with regard to the annual financial statements," said Sam Dibble, partner of the law firm Baker Botts. "It is either a convenient excuse or it is the real reason why you cancel it."

fusion cancellations like this are very unusual. He added that the number of mergers that will be ended after the announcement - crypto or otherwise - is less than 5 %.

"buyers hate to quit because then the next seller with whom they want to work is nervous," said Stoneberg to Blockworks. "Of course, the process has to start from the front for the seller."

But the latest market turbulence should have contributed to this, said Nauman Sheikh, Head of Treasury Management and Derivatives at Wave Financial, and added that the private market ratings had made a reassessment and had dropped between 60 % and 80 %

Although Novogratz wrote to the shareholders in a May letter that the company was able to avoid the headwind in connection with the collapse of Terra's VAT-StableCoin and Luna token, Sheikh added that Galaxy was violated by Terra's sinking and is probably re-evaluating its business.

"The liquidity is also considerably dried up after the failure of Terra and Three Arrows Capital," said Sheikh Blockworks in an email. "Although there are probably technical problems in relation to obvious violations of the conditions, it could also be a case in which Galaxy Bitgo is no longer regarded as potentially profitable takeover in relation to the landscape in which we are currently."

Galaxy recorded a net loss of $ 555 million in the second quarter. The credit portfolio had a case of a loan impairment of around $ 10 million in the quarter, which was due to the bankruptcy of Three Arrows Capital, said executives.

What happens next?

"Pay attention to fireworks, followed by a billing according to the ' Punch-and-Judy 'Show ", said Putnam to Blockworks.

Dibble from Baker Botts agreed and said that there will probably be plenty of "saber rattling" before a kind of agreement would be reached. If Galaxy decides to continue the deal, you could try to renegotiate the price or to determine another deadline for receiving financial reports, he added. Otherwise you could end the deal by paying the termination fee of $ 100 million.

"I think these two results are much more likely than a full -grown court trial," said Dibble. "To force someone to complete a deal like this does not normally happen."

In addition to avoiding potentially expensive legal fees

Stoneberg said that he expects qatalyst-partner an investment bank who served as a consultant for the Galaxy deal from Bitgo will be aggressively carried out on behalf of its customer.

"I would suspect [Qatalyst] is part of [Bitgo’s] strategy for [Secure the Termination Fee] and also that you have one or two other buyers who could be in the starting blocks as soon as you have worked through this processing," he said.

. .

The post Cold feet or breach of contract? A look at the Galaxy Bitgo situation is not a financial advice.