Bitcoin Empire Digital (EMPD) is waging a public fight The financial company holds 3,723 BTC and its share price has fallen by 45% in the past 12 months.
While the company’s holdings are smaller compared to firms like Michael Saylor’s Strategy, boardroom drama from activist investors has thrust the company into the spotlight.
Investor Tice P. Brown, founder and managing partner of the Woodmont Partners family office, said in a February 4 letter that he owns 9.8% of the company and accused management of reckless behavior and poor governance by allowing employees to “day trade tens or hundreds of millions of dollars in Bitcoin derivatives.” He called on co-CEO Ryan Lane and other board members to resign and demanded that all Bitcoin be sold to return cash to shareholders.
Eperi’s management rejected Brown’s claims and offered a different account of recent events. The dispute now spans acquisition negotiations, office meetings and the company’s use of Bitcoin derivatives.
“Management attempted to reach an agreement with Mr. Brown because they believed such an agreement would be in the best interests of the company and all of its shareholders,” the company said in a post on its website. “It is disappointing that Mr. Brown ended these conversations and published his letter to advance his self-serving campaign.”
At its core is a simple question: Should Empery, which has a market capitalization of $140 million, continue to build around its Bitcoin holdings, or should it sell them and phase out, especially with Bitcoin prices retreating from all-time highs and most financial companies hurting?
options trading
Brown, who started increasing his stake in the company in December and is now the third-largest shareholder, supports the latter, according to WallStreetZen data and SEC filings.
Brown, who declined to comment for this story, said in the letter that liquidating all Bitcoin would close the gap between the company’s stock price of about $3.96 and its net asset value of $4.72.
However, Empery said selling all Bitcoin would undermine long-term potential and undermine its strategy.
The strategy involves using its holdings to support an options trading scheme that involves selling out-of-the-money calls and puts and spreads to collect premiums. This is an approach used by some other Bitcoin finance companies, including Metaplanet, the fourth-largest Bitcoin corporate holder, to generate revenue from their Bitcoin holdings.
Simply put, this means that the company earns fees from other market participants who want to learn about Bitcoin price movements. If Bitcoin stays within a certain price range, Empery will maintain a premium. If prices fluctuate significantly, companies will face contractual restrictions.
it’s personal
Disagreement also became personal.
Brown, a graduate of Harvard University and Harvard Law School, noted in recent filings that he has made “hundreds of millions of dollars in public and private investments” through his family office since 2014 and served as chairman of PharmChem, which was acquired last year at a premium to the public market price.
He described a meeting in January at Empyre’s Rockefeller Center offices where he said Lane asked security to remove him. Emperi said Brown insisted the company liquidate immediately and refused to leave unless security escorted him out, ending the meeting.
Brown said in a Feb. 23 letter that the company offered to buy his stock at a premium in exchange for a standstill agreement.
The company said in its post that it had not made an offer to buy Brown’s stock. Instead, it claims Brown’s top agent approached the company to explore a potential deal. Emery confirmed discussions had taken place but said talks broke down over price.
A person familiar with the matter told CoinDesk that Brown is seeking $7.50 per share, valuing the company at about $270 million, compared with the current market capitalization of $136 million.
board bid
The proxy fight escalated on Feb. 26 when Brown filed a formal notice to nominate himself for election to Empery’s board of directors. Brown disclosed in the filing that his shareholding has increased to 10.3%, equivalent to more than 3.3 million shares.
He criticized the company’s “poison pills” and further cited “management’s efforts to enforce standstill agreements,” arguing that such agreements would only entrench incumbents rather than enable shareholders to effect change.
Describing his background as a Harvard Law School graduate and former chairman of PharmChem, Brown said that if elected, he would work to remove barriers to shareholder oversight and significantly increase returns on capital for investors.
“There is no ongoing business purpose for the Company to continue to retain Bitcoin because dozens of cheaper ways to achieve Bitcoin exposure exist,” Brown wrote in the filing.
Bitcoin vaults in trouble
CoinGecko data shows that the company’s average purchase price of Bitcoin is $122,283 per coin, with a total spend of $455 million. The current value is $235.5 million, meaning the sale would result in an actual loss of nearly $220 million.
Still, the company has shown some flexibility. In its latest statement, Empery said it may use existing cash or reduce its Bitcoin holdings to fund stock buybacks or repay borrowings, something other financial firms have done. It did not agree to a full sale.
The company also said recent buybacks had narrowed the gap between its share price and net asset value by about 40% in less than a month.
For now, neither side seems ready to back down. The dispute could not only affect Emery’s future, but could also be a harbinger of what’s to come for other smaller public companies with large holdings of Bitcoin in volatile markets.
