(Reuters) - Shares in Marathon Patent Group handed back around a third of the past week’s stellar gains on Tuesday after the company said it was heavily diluting the value of its existing shares to pay for a much-hyped move into cryptocurrency mining.
The micro-cap IP licensing company has seen its value more than quadruple on its plans to buy Global Bit Ventures Inc and was the second most-traded U.S. stock for much of Monday ahead of a call to lay out the details of the deal post-market.
In the event, Marathon said that it would issue about 127 million shares to pay for the deal, leaving existing shareholders with only 19 percent of the company. That drove its shares down about 25 percent to $4.87 in premarket on Tuesday.
At Marathon’s closing share price on Monday, 127 million shares would be worth $827 million, compared to the company’s market capitalization of $57 million.
Marathon, which has three employees, declined to say if it would issue the shares at a fixed price or talk about other financial details, leaving investors who had dialed into the call a bit perplexed.
“I’m doing the math and seeing that the stock trade is near $6.5, and you’re then effectively paying over $700 million for Global Bit Ventures (...) $725 million of stock sounds to me like a very large sum of money,” one caller said.
“I know you can’t give any revenue guidance or cash flow guidance or anything of that sort, but as a shareholder of the company, I’m scratching my head as to trying to see where the value is really going to be,” one investor said.
Marathon Patent’s chief executive, Doug Croxall, said the value of the deal, which is to closed early next year, would be made “transparent” in a regulatory filing in the next few weeks.
Croxall also declined to comment on the stock’s surge in the past few sessions or why it came so late given the deal was announced on Nov. 2.
But he did say GBV owns 1,000 servers to mine ethereum, of which 300 were running and producing revenue, with 400 to generate revenue imminently.
It plans to add 1,300 servers to mine bitcoin, the most popular cryptocurrency which has surged tenfold this year.
The jump in the value of bitcoin, ethereum and other digital currencies has sparked a move by a number of so-called micro-cap companies to cash in on the craze, and several have seen their stocks soar. [nL3N1NX4SL]
Digital Power Corp rocketed 163 percent on Monday, valuing it at $37 million, after saying it would soon update investors on plans for a cryptocurrencies mining-targeted tech and services portfolio.
Riot Blockchain Inc, formerly a small biotech firm, has more than doubled since it said at the start of November it would buy 1,200 bitcoin mining machines.
Reporting by Savio D'Souza in Bengaluru; editing by Patrick Graham