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One of Core Scientific’s biggest investors has threatened to launch a revolt against CoreWeave’s planned purchase of the group, arguing the deal’s structure is “deficient” and could undervalue it.
Two Seas Capital, a hedge fund that owns more than 6 per cent of Core Scientific shares, intends to begin a proxy battle against the tie-up. It said it would “vote against the transaction” and urge other shareholders to do so unless CoreWeave improves the financial terms, according to an investor letter published on Thursday.
CoreWeave’s shares have tumbled by a quarter since the deal was announced on July 7, reversing course after a sharp rally following the data centre operator’s Wall Street debut in March. The company’s purchase of Core Scientific, which leases out computing power, was structured as an all-share deal, which means the falling stock price reduces the deal’s value.
“There is no compelling reason to sell Core Scientific at an underwhelming valuation with a deficient structure,” Two Seas said in the letter, which was initially reported by the Financial Times.
Two Seas noted it was not opposed to the deal, but is seeking terms that protect Core Scientific shareholders from the downside if CoreWeave shares fall further. The hedge fund is the third-largest shareholder in Core Scientific, according to the latest regulatory filings.
CoreWeave declined to comment. Core Scientific did not respond to requests for comment.
Core Scientific leases out computing power — including to CoreWeave — through its data centre infrastructure around the US. CoreWeave said the deal would shave some $10bn off its leasing expenses in the coming years if it was able to seal the deal.
According to the deal terms, Core Scientific shareholders will receive a fixed ratio of 0.1235 newly issued CoreWeave shares without any protections if the buyer’s stock falls in the coming months.
To protect Core Scientific shareholders against potential losses, the transaction could include a “collar” agreement, allowing the company’s investors to receive additional CoreWeave shares if the stock price falls. But buyers typically resist collar provisions because they can dilute their own shareholders.
CoreWeave’s 26 per cent stock slide over the past month means Core Scientific’s implied valuation has dropped from $9bn to about $6.7bn.
Some investors believe Core Scientific is worth more than the original valuation, and should be bought for a figure closer to $25 a share, or $11.5bn, according to people familiar with the matter.
CoreWeave reports earnings next week and its share lock-up expires soon, allowing early investors to sell their shares for the first time since it went public in March.
Additional reporting by Sujeet Indap and Tabby Kinder
