The crypto sector's first $1 billion deal, announced at the height of record surge in token prices last year, is disbanding as the market reverses much of the gains -- and not everyone is pleased.
Galaxy Digital said Monday it has terminated the $1.2 billion proposed acquisition of crypto custodian BitGo, a high-profile deal they announced in May last year, after the San Francisco-based startup failed to provide its audited financial statements for the year 2021. BitGo's response: Galaxy Digital's actions are "improper" and it plans to hold the firm "legally accountable" and seek over $100 million in damages.
BitGo's alleged failure to provide the financial statements by July 31 violated the terms the two firms had agreed upon last year, Galaxy Digital said in a public statement, adding that the termination of the deal won't incur the company any fee. Shares of Galaxy Digital, which trades in Toronto, jumped on the news.
BitGo has disputed Galaxy Digital's characterization, saying the expiry on the deal was until December 31 "at the earliest" and that Galaxy Digital has failed to pay $100 million reverse break fee it had "promised back in March 2022 in order to induce BitGo to extend the merger agreement."
The proposed acquisition -- which was proposed to include Galaxy Digital issuing 33.8 million new shares and a $265 million cash component -- was supposed to be the crypto sector's first $1 billion deal. The BitGo purchase was positioned to help Galaxy Digital broaden its offerings for institutional investors by adding services such as investment banking, prime lending and tax services. BitGo, which counts Galaxy Digital, Goldman Sachs, Valor Equity Partners, Craft Ventures, DRW and Redpoint Ventures among its backers, ended last year with over $64 billion in assets in custody, it said.
"The power of the technology, solutions, and people we will have as a result of this acquisition will unlock unique value for our clients and drive long-term growth for our combined business. We are excited to welcome Mike Belshe and the talented BitGo team to Galaxy Digital," Mike Novogratz, chief executive officer and founder of Galaxy Digital, said at the time.
Novogratz (pictured above) said Monday: "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."
The announcement follows Galaxy Digital reporting a second-quarter loss of $554.7 million, up from a loss of $183 million a year ago, earlier this month. In the company's earnings call, Novogratz said Galaxy Digital had about $1 billion in cash on hand. Galaxy Digital said today it is waiting for the SEC's review and stock exchange approval for a Nasdaq listing.
BitGo has hired the California-headquartered law firm Quinn Emanuel to take appropriate legal action, it said.
"The attempt by Mike Novogratz and Galaxy Digital to blame the termination on BitGo is absurd," said R. Brian Timmons, a partner with Quinn Emanuel, said in a statement. "BitGo has honored its obligations thus far, including the delivery of its audited financials. It is public knowledge that Galaxy reported a $550 million loss this past quarter, that its stock is performing poorly, and that both Galaxy and Mr. Novogratz have been distracted by the Luna fiasco. Either Galaxy owes BitGo a $100 million termination fee as promised or it has been acting in bad faith and faces damages of that much or more."
The story was updated with BitGo's response.