Core Scientific’s largest active shareholder opposes $9 billion sale to CoreWeave, citing material undervaluation of bitcoin miner

In an open letter on Thursday, Core Scientific's largest active shareholder, Two Seas Capital, said the proposed acquisition of the bitcoin miner by AI hyperscaler CoreWeave "materially undervalues" the firm and "unnecessarily exposes shareholders to substantial economic risk."

Two Seas, an alternative investment management firm, said it intends to vote against the proposed sale at a meeting later this year under the terms announced last month, and urged other Core Scientific shareholders to do the same.

CoreWeave agreed to acquire Core Scientific on July 7 in an all-stock deal valued at $9 billion, which includes a 66% premium over Core Scientific's share price as of June 25 when takeover talks resurfaced. Under the terms of the acquisition, Core Scientific shareholders will receive 0.1235 CoreWeave Class A shares for each Core Scientific share. 

The deal integrates Core Scientific's 1.2 GW data-center network into CoreWeave's AI-compute business, helping CoreWeave expand its operations for clients like OpenAI and Microsoft. It would cancel a prior $10 billion hosting pact and give Core Scientific holders less than 10% of the combined company. The transaction is expected to close in Q4, pending the shareholder vote and regulatory approval.

"We are disappointed that the board of directors has chosen to sell the company to CoreWeave at this inadequate valuation," Two Seas wrote in the letter. "The proposed all-stock, uncollared structure leaves Core Scientific shareholders exposed to the high volatility of CoreWeave's share price with no protections on the value they will receive at or following close."

Not philosophically opposed to a merger

Two Seas said it was not philosophically opposed to a merger of the two parties, as it is also an investor in CoreWeave and has advocated for the combination, recognizing its strategic merits. However, the transaction "decidedly and unfairly" favors CoreWeave at the expense of Core Scientific shareholders, in its view. "The fact that Core Scientific's stock price declined by 30% in the days following the transaction announcement strongly suggests to us that other investors agree."

The $1.4 billion asset manager added that it welcomes all suitors, including CoreWeave, to bid on Core Scientific, but believes the board must ensure any deal reflects the strategic value of the company's assets and synergies. In its view, the current transaction falls short of that standard, and there is "no compelling reason to sell at an underwhelming valuation with a deficient structure."

Two Seas invested in Core Scientific because it believes in its potential to create significant value as a leader in building high-performance computing infrastructure, with the growing demand for AI and the need for energy-efficient data centers positioning Core Scientific's scale, access to low-cost power, and expertise well for long-term growth.

"Unless the terms are revised to address what we believe to be both the structural shortcomings and inadequate consideration, we intend to vote against the transaction and plan to solicit you, our fellow Core Scientific shareholders, to do the same," the firm concluded. "We do not believe this transaction should receive shareholder approval."

Over the past 18 months, Two Seas has increased its equity stake in Core Scientific and now owns 19,122,842 shares, representing approximately 6.3% of the company.

Core Scientific's shares closed up 1.7% on Thursday at $14.35, according to The Block's CORZ price page, trading flat since the deal was announced. The stock is currently trading up 1.2% pre-market on Friday, per TradingView — contributing to a 46.7% gain over the past year. CoreWaeve is the fourth-largest public bitcoin miner with a market cap of $4.3 billion.

CoreWeave's shares gained 9.8% on Thursday to close at $121.08. However, CRWV has fallen nearly 24% since July 7.