A major stakeholder in Core Scientific, a data center developer and operator, has stated that he will vote against the company’s proposed acquisition by rival data center business CoreWeave in an upcoming shareholder vote.
“Under the math of the deal today, I would have to vote no,” Trip Miller, founder of investment company Gullane Capital, told Business Insider on Friday afternoon.
Gullane, situated in Memphis, Tennessee, is Core Scientific’s third-largest stakeholder, behind Vanguard and BlackRock, with a stake worth around $200 million.
One of the biggest data center mergers of the year is in doubt due to Miller’s resistance, which joins other recent criticism to the agreement. The $5 billion acquisition will let CoreWeave, the AI cloud sensation vying for more processing capacity, continue to expand quickly while simultaneously reducing its skyrocketing expenses by billions of dollars.
But just weeks before shareholders are scheduled to vote on the transaction, a decline in Core Scientific’s stock price has made the offer less valuable, escalating investor fears that the agreement drastically undervalues the company.
In a long presentation released on October 14, Two Seas Capital, another investment group that holds around 6.3% of Core Scientific’s stock, listed its several concerns about the transaction, including the fact that it was not lucrative enough for stockholders. The company asked investors to vote against it in the October 30 shareholder vote.
CoreWeave’s CEO responded that the purchase was “the most compelling path forward for Core Scientific stockholders” and that the current agreement would be the company’s “best and final” offer. CoreWeave is situated in Livingston, New Jersey.
In a letter released on October 16, CoreWeave CEO Michael Intrator stated that the combination will provide Core Scientific and CoreWeave investors with the chance to profit from the enormous upside potential and long-term value creation fueled by more verticalization.
Two Seas Capital’s allegations, according to Intrator, were “misleading and misinformed.”
CoreWeave’s quick, debt-fueled expansion has put it at the forefront of a developing discussion about whether AI speculation has petered out or if pioneers like it are taking advantage of a once-in-a-lifetime investment opportunity.
In July, CoreWeave declared that it had achieved a contract to purchase Core Scientific in a stock conversion deal, which valued Core Scientific at about $9 billion at the time and $20.40 per share, which was 66% more per share than the company had been trading for at the time.
However, the economics have changed in the following months, with Core Scientific’s shares rising and CoreWeave’s declining. As of right now, the stock conversion arrangement values Core Scientific’s shares at around $17, which is about 10% less than their Friday market price of roughly $19.
Requests for comment were not answered by CoreWeave or Core Scientific.
Miller stated, “I believe there is only one reason this deal is not popular: it has a flaw in its structure.” It would be a deal that would, in fact, value my shares below their present market value.
Quick expansion and rising expenses
Since a volatile initial public offering in March, CoreWeave has risen to a $70 billion market valuation — more than three times its IPO value — and a position at the forefront of the thriving data center industry.
In order to expand its capabilities and client offers, it has spent billions of dollars acquiring AI developers and cloud providers. It has also announced significant agreements with some of the leading names in artificial intelligence, including as OpenAI, Meta, Microsoft, and the chipmaker Nvidia.
During the company’s second-quarter earnings call, Intrator stated that its largest clients needed “planetary” infrastructure development, including data centers.
CoreWeave’s CEO and cofounder, Michael Intrator, stated on the company’s second quarter earnings call that they are actively extending its presence in response to increasing client demand signals, ensuring that they have a long-term growth runway.
By the end of 2025, CoreWeave plans to increase its operating data centers’ capacity from around 470 megawatts to over 900 megawatts, which is sufficient to light up about a fifth of New York City on a typical day. By acquiring Core Scientific, the company’s operating megawattage would more than double, and its committed future power pipeline would grow by 50% to almost 3 gigawatts.
CoreWeave announced that its second quarter revenues of $1.2 billion over doubled that of the same period last year, and that its revenue backlog of $30.1 billion has doubled since the year began, indicating its remarkable commercial prospects. However, year over year, its operating margins decreased from 20% to 2%, indicating that expenses are progressively reducing the company’s profitability.
According to the corporation, its borrowing prices for its different loans ranged from 7% to 15%, and by the conclusion of the second quarter, its debt had increased to $11.2 billion, a 40% rise from the start of the year.
Concerns over the high cost of borrowing in comparison to the company’s narrower profit margins have been voiced by Gil Luria, an analyst who follows this company.
When Luria stated, “They’re selling $20 bills for 15 bucks,”
“Sometimes we forget to ask ourselves if this business should even exist,” added Luria. “I’m not sure the answer is yes.”
Acquiring Core Scientific would reduce some of CoreWeave’s mounting overhead.
CoreWeave rents around 270 megawatts of data center space from Core Scientific, and it has stated that acquiring the firm would allow it to save almost $10 billion in lease payments for that space over the next 12 years.
They understand how vital it is to the long-term survival of their business model to own the economics surrounding their greatest expense, data centers, according to Raul Martynek, CEO of DataBank, a data center developer and operator that is not participating in the deal.
Martynek stated that Intrator’s answer letter indicated that the CEO was launching a “full-throated defense of their offer” to acquire Core Scientific.
What is Core Scientific value in a booming data center market?
Among the issues raised in its presentation, Two Seas claimed that the agreement failed to provide shareholders with protection from stock price swings that had upset the transaction’s economics.
The true worth of Core Scientific and its strategic importance to CoreWeave were devalued by the initial headline purchase price of $20.40 per share. “Two Seas Capital wrote.” A take-under of Core Scientific is reflected in the current transaction value of less than $18 per share, which follows one of the greatest post-deal declines in an acquirer’s stock price since 2020.
CoreWeave is the sole significant data center client for Core Scientific, and its operations generate 76% of Core Scientific’s income, according to Intrator’s letter dated Thursday.
The intro continued by saying that investors in Core Scientific should “think objectively about Core Scientific’s stand-alone prospects and the significant risks involved” in turning down the transaction and continuing to operate as a separate business.
In a hot data center industry, “the belief is, if you leave this company alone for 18 months, it’s a $30 to $40 company” per share, Miller disagreed, saying he thought it would be a more profitable acquisition target.
