In brief
- Two Seas Capital, Core Scientific’s largest active shareholder with a 6.3% stake, is opposing a $9 billion all-stock sale to CoreWeave.
- The hedge fund says the uncollared structure leaves investors exposed to CoreWeave’s volatile stock with no value protections.
- A shareholder vote later this year will coincide with CoreWeave’s IPO lockup expiry, potentially adding volatility to both stocks.
Core Scientific’s largest active shareholder is moving to block the miner’s proposed $9 billion all-stock sale to AI infrastructure provider CoreWeave, calling the offer “inadequate” and unfavorable to existing shareholders.
The proposed sale “materially undervalues” the company and unnecessarily exposes its shareholders to substantial economic risk, New York-based Two Seas Capital, the largest active shareholder in Core Scientific with about a 6.3% stake, said in a statement Thursday.
Two Seas Capital voiced how it was “disappointed” at the choice of selling at an “inadequate valuation,” arguing that the all-stock, uncollared structure leaves shareholders exposed to CoreWeave’s volatile share price with no value protections.
The hedge fund claims the $9 billion deal “decidedly and unfairly favors CoreWeave” at the expense of Core Scientific shareholders like them, noting that the company’s stock fell 30% in the days after the transaction was announced, a move it says reflects broader investor concern.
Announced last month, the deal pegs each Core Scientific share to 0.1235 of a CoreWeave share, which at the time implied a value of about $20.4 per share.
CoreWeave’s stock has since fallen by between 26% and 30%, reducing the effective valuation to just over $13 per share. Core Scientific shares, meanwhile, showed a modest recovery in intraday trading on Thursday, rising 1.7% to $14.35, Google Finance data shows.
The drop has sharpened scrutiny of the deal’s terms, with some investors pointing to patterns seen in other contested all-stock mergers.
The situation is common in all-stock deals, especially when large shareholders began as “distressed debt investors” who converted bonds into equity in a reorganization, according to Jeffrey Emanuel, founder and CEO of blockchain infrastructure firm Pastel Network.
“Those investors tend to lean more activist and are more aggressive in defending their rights, as is the case here,” Emanuel told Decrypt.
Investors against a stock transaction will “either want more of the consideration to be in the form of cash or a less volatile security (e.g., preferred equity), or they will want a more favorable merger ratio,” he added.
Still, CoreWeave would likely be “unwilling to do those things because it’s in their interest to use their inflated stock as a currency,” he said.
What is at issue, instead, is the “wildly inflated valuation” of CoreWeave stock, Emanuel said, particularly with its IPO lockup set to expire in a month, a milestone he expects will “likely put pressure on the share price.”
A shareholder vote on the deal is expected later this year, a timing that could add volatility to both companies’ shares.
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