In a significant development within the cryptocurrency mining sector, Two Seas Capital, a prominent player and the third-largest shareholder in Core Scientific (CORZ), has expressed strong opposition to the company’s all-stock acquisition proposal by AI cloud provider CoreWeave (CRWV). This decision was publicly disclosed in a letter released on Thursday, wherein Two Seas declared its intention to vote against the deal and rally additional shareholders to join their cause unless substantial modifications are made.
Two Seas argues that the proposed transaction, initially announced on July 7, is fundamentally flawed due to its all-stock and uncollared nature. This approach, they claim, disproportionately benefits CoreWeave while undervaluing Core Scientific’s vital role in high-performance computing (HPC) infrastructure. Sina Toussi, the founder of Two Seas, stated,
“The proposed sale materially undervalues the company and unnecessarily exposes its shareholders to substantial economic risk.”
As of Thursday’s trading, shares of CORZ were modestly up at $14.24, yet still fell short of the approximately $20 valuation seen four weeks prior to the acquisition announcement. Two Seas, having invested in Core Scientific since 2022 and participating in its post-bankruptcy restructuring, remains bullish on the company’s long-term prospects. They advocate for Core Scientific to maintain its independence unless a more favorable offer arises.
In their assessment, the firm highlighted the concern surrounding Core Scientific’s share price, which plummeted by 30% following the announcement of the acquisition, indicating investor trepidation. Two Seas has urged the Core Scientific board to explore alternative offers, including those from CoreWeave, but insists that any such proposals must accurately reflect the strategic value and growth potential of Core Scientific’s assets.
Moreover, analysts from investment bank KBW have echoed the sentiment that Core Scientific shareholders are likely to challenge the terms of the deal. They note that the asset base has remained unchanged since CoreWeave’s earlier unsuccessful bid, further complicating acceptance of the current proposal, which lacks a cash component. In the weeks to come, Two Seas Capital plans to provide additional insights and engage with other shareholders to advocate for a resolution that aligns with the best interests of Core Scientific’s future.
Two Seas Capital’s Opposition to Core Scientific Acquisition
Key points regarding the situation between Two Seas Capital and Core Scientific:
- Two Seas Capital’s Stake: Holds a 6.3% stake in Core Scientific (CORZ), making it the third largest shareholder.
- Opposition to Acquisition: Plans to vote against the proposed all-stock acquisition by CoreWeave (CRWV), announced on July 7.
- Concerns Raised:
- Transaction favors CoreWeave disproportionately.
- Sale undervalues Core Scientific and poses economic risks to shareholders.
- Call for Better Terms: Two Seas urges the board to seek alternative bids that better reflect Core Scientific’s strategic assets and growth potential.
- Market Reaction: Following the announcement, CORZ shares dropped significantly, highlighting investor concerns about the acquisition terms.
- Future Engagement: Two Seas plans to analyze the situation further and engage with other shareholders in upcoming weeks.
Sina Toussi, founder of Two Seas: “The proposed sale materially undervalues the company and unnecessarily exposes its shareholders to substantial economic risk.”
Two Seas Capital’s Stand Against Core Scientific Acquisition: Implications for Investors
The recent stance taken by Two Seas Capital against the proposed all-stock acquisition of Core Scientific by CoreWeave has significant ramifications in the cryptocurrency and tech investment landscapes. This firm, holding a notable 6.3% stake in Core Scientific, is leveraging its influence to rally support among fellow shareholders, emphasizing the belief that the deal undervalues Core Scientific and exposes investors to unnecessary financial risks. This opposing viewpoint highlights the competitive advantages that Two Seas may have in shaping the narrative surrounding the acquisition.
Advantages: Two Seas’ vocal opposition enables it to steer attention toward fairness in shareholder value, potentially attracting other investors who share similar concerns regarding corporate governance. Their longstanding support for Core Scientific since its restructuring in 2022 positions them as credible advocates for its long-term stability and growth prospects, making their criticism of the acquisition resonate on a wider scale. By advocating for alternative bids, they not only bolster their own strategic interests but also open the floor for potentially more lucrative opportunities for all shareholders.
Disadvantages: However, this pushback could create friction within the investor community, particularly among those who view the merger as beneficial, even if the terms are not ideal. The risk of instability may deter potential new investors from engaging with either Core Scientific or CoreWeave, especially in an industry already marked by volatility. In an environment where tech mergers often attract skepticism, especially amidst fluctuating stock valuations, this resistance could dampen enthusiasm for other partnerships or acquisitions in the sector.
This scenario particularly benefits shareholders who prioritize strategic value over immediate liquidity. Conversely, it poses challenges for CoreWeave, which may find itself scrutinized more closely as a result of this dissent. Investors aligned with CoreWeave’s vision for the combined entity might feel unsettled by the potential for prolonged negotiations and heightened tension. The situation is fluid, and as Two Seas plans to engage further, the outcomes could redefine shareholder dynamics and impact future investment strategies in the rapidly evolving landscape of digital assets and high-performance computing.
