CoreWeave's $9bn Core Scientific Deal Faces Shareholder Revolt

CoreWeave’s proposed $9 billion all-stock acquisition of data center operator Core Scientific is facing significant opposition from some of Core Scientific’s largest shareholders, who argue the terms of the deal would leave them financially disadvantaged.

The merger, announced in July, is strategically important for CoreWeave, a rapidly expanding provider of AI data centers used by major tech companies like Microsoft and OpenAI. Acquiring Core Scientific, which owns and leases out computing power infrastructure across the US, would allow CoreWeave to eliminate an estimated $10 billion in future lease costs. Core Scientific’s data centers constituted nearly 40 percent of CoreWeave’s total computing capacity in 2024, and Core Scientific had contracts expected to generate over $10 billion in revenue from CoreWeave over 12 years. This acquisition is also viewed as a move by CoreWeave to conserve cash, given its substantial debt obligations and interest payments due in the coming two years.

However, top Core Scientific shareholders are expressing strong dissatisfaction with the offer, which proposes a fixed exchange ratio of 0.1235 newly issued CoreWeave shares for each Core Scientific share. Their primary concern stems from the absence of protections against a decline in CoreWeave’s stock price. Since the merger’s announcement on July 7, CoreWeave’s shares have fallen by over 30 percent. This decline has effectively reduced the implied value of Core Scientific in the takeover from approximately $20.25 per share to just over $13 per share, significantly impacting the value shareholders would receive.

Hedge funds, including Two Seas Capital, Helix Partners Management, JAT Capital, and Parsifal Capital Management, which collectively own more than one percent of Core Scientific’s stock, are reportedly considering voting against the merger. They hope such a move would compel CoreWeave to offer more favorable terms, ideally incorporating a “collar agreement” to provide valuation certainty and limit potential downside for Core Scientific shareholders. One Core Scientific shareholder commented, “The powers that be at CoreWeave know they got a fantastic deal. They were able to issue back less than 10 percent of their company to buy back their biggest data center counterparty.”

CoreWeave had previously attempted to acquire Core Scientific last year with an offer of $5.75 per share, representing a 55 percent premium at the time, but that bid was rejected. Following the failed attempt, CoreWeave secured several large contracts to lease Core Scientific’s data center space.

Both CoreWeave and Core Scientific originated as cryptocurrency mining operations before pivoting to focus on AI computing infrastructure. Core Scientific, which went public in 2022, faced bankruptcy after its primary customer, Celsius Network, collapsed. The company relisted its shares on Nasdaq last year after emerging from bankruptcy. Core Scientific’s stock price has more than doubled since April, driven by surging demand for its data center services.

Despite the widespread discontent among several hedge funds, the fragmented nature of Core Scientific’s share ownership, with no single fund holding a dominant stake, could complicate efforts to rally sufficient opposition against the deal. Shareholders are also awaiting voting recommendations from proxy advisory firms like Institutional Shareholder Services (ISS). A favorable recommendation from ISS for the deal could present a further obstacle to shareholder resistance.

The shareholder vote for Core Scientific is anticipated to be scheduled for sometime this autumn. Meanwhile, the lock-up period for CoreWeave’s investors, preventing them from selling their shares in the company (which went public earlier this year), is set to expire on September 24. This expiry could potentially influence CoreWeave’s stock price if a significant number of holders decide to cash out.

CoreWeave declined to comment on the matter, and Core Scientific did not respond to requests for comment.