Bitcoin (BTC) mining company TeraWulf Inc. experienced a 7% drop in its stock price to $5.84 after announcing a $425 million offering of 2.75% convertible senior notes due in 2030. This news caused TeraWulf to be the worst-performing share in VanEck Digital Transformation ETF (DAPP) on October 24, as noted by VanEck’s head of digital assets research, Matthew Sigel.
Sigel expressed disappointment in TeraWulf’s decision to announce a dilutive convertible offering instead of revealing an anticipated AI/HPC customer. Despite the recent decline in TeraWulf’s stock price, the company had seen a significant 71% increase from October 9 to October 22.
Ernst & Young manager Daniel Marques indicated that the $6 price level was acting as strong resistance for TeraWulf’s stock. He predicted a 20-30% pullback before the stock could potentially reach $7-9, emphasizing the importance of long-term strategy in investing.
TeraWulf plans to use the funds raised from the convertible notes offering for various purposes. $115 million will go towards repurchasing common stock, while $51 million will be allocated for capped call transactions to reduce dilution risk. The remaining funds will support general corporate activities, including working capital, acquisitions, and expanding data center infrastructure for high-performance computing operations.
The convertible notes can be converted into cash, common stock, or a combination of both at a conversion rate of 117.9245 shares per $1,000 principal amount. This conversion price represents a 32.5% premium over TeraWulf’s closing stock price on October 23. Additionally, the company has entered into capped call transactions with a cap price of $12.80 per share to mitigate potential dilution risks.
In conjunction with the convertible notes offering, TeraWulf has initiated a stock repurchase program, buying back approximately 17.97 million shares for $115 million. This repurchase is expected to enhance shareholder value by reducing the number of outstanding shares.
Overall, TeraWulf’s strategic moves aim to strengthen its financial position, support growth initiatives, and manage potential dilution risks. By leveraging convertible notes, capped call transactions, and a stock repurchase program, TeraWulf is positioning itself for long-term success in the competitive Bitcoin mining industry.