A $5 billion deal key to CoreWeave's AI empire just lost another investor's support

CoreWeave's proposed acquisition of Core Scientific is facing significant shareholder opposition, with major investors like Gullane Capital and Two Seas Capital planning to reject the deal. They argue that the stock-based offer, initially valuing Core Scientific at $20.40 per share, has depreciated to approximately $17 per share due to a decline in CoreWeave's stock, now falling below Core Scientific's current market price and constituting a "take-under." CoreWeave, which needs the acquisition to secure critical data center capacity, reduce soaring costs, and sustain its rapid, debt-fueled growth amid falling operating margins, maintains its current offer is "best and final" ahead of the October 30 shareholder vote, underscoring the strategic importance of the deal for its business model.

Analysis

CoreWeave's proposed acquisition of Core Scientific (CORZ) faces significant shareholder opposition, with major investors like Gullane Capital and Two Seas Capital planning to reject the deal. They argue the stock-based offer, initially valuing CORZ at $20.40 per share, has depreciated to approximately $17 per share due to CoreWeave's (CRWV) stock dip, now falling below CORZ's current market price of $19 and constituting a "take-under." Gullane, Core Scientific's third-largest shareholder, and Two Seas Capital (6.3% stake) believe the deal undervalues CORZ's intrinsic and strategic worth.

CoreWeave, an AI cloud provider, views this acquisition as critical for its rapid growth and cost reduction, specifically to save an estimated $10 billion in lease payments over 12 years. Despite doubling Q2 revenue to $1.2 billion year-over-year and a $30.1 billion revenue backlog, CRWV's operating margins have sharply declined from 20% to 2%. Its debt has also surged 40% to $11.2 billion, with borrowing costs ranging from 7% to 15%, raising concerns about profitability and financial sustainability.

CoreWeave's CEO maintains the current offer is "best and final," emphasizing that CRWV represents 76% of Core Scientific's revenue, implying significant standalone risks for CORZ if the deal fails. However, dissenting shareholders believe CORZ could be worth $30-$40 per share independently in a hot data center market. The uncertainty surrounding this merger, one of the sector's largest this year, casts doubt on CoreWeave's ability to secure essential infrastructure and manage its escalating costs, while also highlighting the contentious valuations in the AI-driven data center market.

Key Decisions for Investors

• Investors in Core Scientific (CORZ) should closely monitor the October 30 shareholder vote, as rejection could lead to short-term volatility but potentially higher long-term value if the company remains independent or attracts a superior offer.
• CoreWeave (CRWV) investors should assess the implications of a failed acquisition on its growth trajectory and cost structure, given its declining operating margins and high debt servicing costs.
• Consider the broader market implications for data center infrastructure providers, as the contested valuation highlights strong demand but also potential overvaluation concerns in the AI sector.