Core Investor of Core Scientific to Cast Vote Against Inadequate $9B Takeover Proposal by CoreWeave
In a surprising turn of events, Two Seas Capital, Core Scientific's largest active shareholder with a 6.3% stake, has voiced opposition to the company's proposed $9 billion all-stock sale to CoreWeave. The deal, according to Two Seas Capital, is structurally flawed and materially undervalues Core Scientific.
The all-stock, uncollared structure of the deal exposes Core Scientific shareholders to significant economic risk. By tying their returns entirely to the volatile share price of CoreWeave, shareholders are left without downside protections, a concern raised by Two Seas Capital.
Moreover, the current terms disproportionately benefit CoreWeave and do not fairly reflect Core Scientific’s strategic value in the high-performance computing infrastructure sector. Two Seas Capital supports the logic of a merger but insists the board should seek higher bids or improved terms before proceeding. If the deal remains unchanged, they have threatened to rally other shareholders against it.
The wildly inflated valuation of CoreWeave's stock is another point of contention. Since the deal was announced, CoreWeave's stock has fallen by between 26% and 30%, reducing the effective valuation to just over $13 per share. This has led some investors to question the deal's fairness, particularly in light of CoreWeave's IPO lockup expiry in a month, which could put pressure on the share price.
Emanuel, the founder and CEO of Pastel Network, has also weighed in on the situation. He suggests that CoreWeave may be unwilling to offer more cash or a less volatile security due to its interest in using its inflated stock as a currency. He also comments that investors against a stock transaction will want a more favorable merger ratio.
The shareholder vote on the deal is expected later this year, which could add volatility to both companies' shares. The shareholder vote for the proposed sale will coincide with CoreWeave's IPO lockup expiry, potentially adding further volatility to both stocks.
Core Scientific shares showed a modest recovery in intraday trading on Thursday, rising 1.7% to $14.35. Despite this, Two Seas Capital finds the proposed sale "inadequate" and unfavorable to existing shareholders.
Emanuel explains that investors who started as distressed debt investors tend to lean more activist and are more aggressive in defending their rights. This seems to be the case with Two Seas Capital, who are opposing the deal.
As the situation unfolds, it remains to be seen whether Core Scientific will heed Two Seas Capital's advice and renegotiate the terms of the deal to better protect its shareholders.
[1] Two Seas Capital Letter to Core Scientific Board of Directors, 16th February 2023. [2] Two Seas Capital Press Release, 17th February 2023.
- In light of Two Seas Capital's opposition, the proposed $9 billion all-stock sale between Core Scientific and CoreWeave could face challenges, especially if Two Seas Capital successfully rallies other shareholders against it.
- The volatile nature of crypto, such as the share price of CoreWeave, poses a significant risk for investors in the proposed all-stock sale, a concern that Two Seas Capital has highlighted.
- The current terms of the proposed sale have been criticized for disproportionately benefiting CoreWeave, as they do not reflect Core Scientific's strategic value in the blockchain and high-performance computing infrastructure sector.
- As the shareholder vote on the deal approaches, the value of CoreWeave's stock, which has fallen since the deal was announced, could impact the perceived fairness of the deal, particularly if CoreWeave's IPO lockup expires, potentially affecting its share price.
