Shares in Robinhood Markets Inc. surged 14% today after Bloomberg published a report claiming that cryptocurrency exchange FTX Digital Markets Ltd. is exploring acquiring the company.
The report, referencing people with knowledge of the matter, says FTX is deliberating internally on how to buy Robinhood. No formal takeover approach has been made and FTX could opt against pursuing the deal.
FTX Chief Executive Officer Sam Bankman-Fried neither denied nor confirmed the report. “We are excited about Robinhood’s business prospects and potential ways we could partner with them,” Bankman-Fried said in a statement. “That being said, there are no active M&A conversations with Robinhood.”
The key in the statement is the wording: Bankman-Fried doesn’t deny that FTX is considering acquiring Robinhood, only stating that there are currently no merger and acquisition conversations, which is in line with the Bloomberg report. Notably, Emergent Fidelity Technologies Ltd., a company controlled by Bankman-Fried, has owned a 7.6% stake in Robinhood since May.
Any attempt by FTX to acquire Robinhood would come at a time of continued issues in cryptocurrency markets and an ongoing decline in Robinhood’s share price. After trading as high as $55 per share in August, Robinhood’s share price has hit a low of $6.89 per share.
Robinhood has reported regular disappointing earnings reports — four straight quarters of misses since it went public in July. The company cut 9% of its full-time employees on April 26 ahead of another disappointing earnings report on April 28.
FTX snapping up Robinhood could deliver advantages to both companies. Although Robinhood’s fortunes have floundered, combining the two companies would provide synergies. Although Robinhood’s users are trading less, they still have a large customer base that FTX could leverage.
Robinhood shares closed regular trading at $9.12 but dropped almost 5% after the bell. Robinhood’s market cap sat at $7.95 billion.
FTX is an exchange that has raised serious money — $1.7 billion in total and $400 million as of its last round in January on a $32 billion valuation. However, that was before the crypto crash that has seen the value of popular cryptocurrencies drop by two-thirds and sometimes more during the year.
Presuming a premium is offered in a deal to acquire Robinhood, FTX will need somewhere in the vicinity of $8 billion to $10 billion, possibly higher, unless the deal is equity-based. Even in its distressed state, Robinhood is still a pricey acquisition for FTX, given its funds.