DEFC14A: Two Seas Capital Urges AGAINST Core Scientific Merger

Two Seas Capital LP, a major shareholder, is actively soliciting votes AGAINST Core Scientific's proposed acquisition by CoreWeave, citing a flawed process, deficient structure, and inadequate valuation.

Summary

• Two Seas Capital LP, holding approximately 6.2% of Core Scientific's common stock, believes the proposed merger with CoreWeave significantly undervalues the company.
• The firm argues the merger process was flawed, as Core Scientific did not engage with any other potential acquirers despite receiving an unsolicited proposal from CoreWeave.
• The initial unsolicited proposal from CoreWeave in June 2024 offered an 18% premium, which Core Scientific rejected as significantly undervaluing the company.
• A year later, CoreWeave's June 2025 unsolicited proposal offered a significantly lower 6% premium, which the Core Scientific Board quickly engaged with.
• The entire sale process, from the June 2025 proposal to the merger announcement, lasted little more than a month.
• Core Scientific's Board accepted a 'no-shop' provision and a substantial break-up fee, limiting the company's ability to seek alternative proposals.
• The merger structure is deemed deficient because it exposes Core Scientific stockholders to extreme volatility and decline in CoreWeave's stock value, without downside protection like a collar or cash consideration.
• CoreWeave's stock price exhibited 161% annualized volatility between its March 2025 IPO and the merger announcement, more than twice the Nasdaq Composite median.
• CoreWeave had 36% short interest of its free float at the time of the merger announcement, compared to a 3% Nasdaq Composite median.
• A lock-up period for CoreWeave insiders and early investors, holding hundreds of millions of shares, was set to expire shortly after CoreWeave's Q2 earnings report, leading to heightened volatility and a 33% stock price drop in two days post-earnings.
• The implied value of the merger consideration declined by approximately 25% from $20.40 at announcement to $15.42 as of September 19, 2025.
• As of September 26, 2025, the transaction consideration is valued at less than $15 per share, which is below Core Scientific's current stock price and the midpoints of valuation ranges provided by Core Scientific's financial advisors.
• Core Scientific's executive officers named in the company's proxy statement stand to receive nearly $200 million in compensation, with performance share units vesting at the absolute maximum level (300%) upon merger closing, even if they remain employed by CoreWeave.

Sentiment

Score: 2

Explanation: The sentiment is strongly negative regarding the proposed merger terms and the process leading to it. Two Seas Capital believes the company is significantly undervalued by the offer and the deal structure is detrimental to shareholders. However, the sentiment towards Core Scientific's standalone potential is positive.

Positives

• Core Scientific possesses a first-mover advantage among digital asset mining companies and ready access to low-cost power at scale, positioning it to lead in high-performance computing (HPC) digital infrastructure.
• The company's leadership team has consistently expressed confidence in capitalizing on growing demand for energy-dense, application-specific data centers and delivering long-term value.
• Core Scientific is identified as the only pure-play company in public markets focused on high-density co-location infrastructure.
• The unique and valuable arrangement with CoreWeave, including $10.2 billion in projected revenue over twelve years (before renewals) from HPC hosting contracts, has de-risked Core Scientific's business plan.
• Two Seas Capital believes a combination with CoreWeave has considerable strategic merit, as it would expand CoreWeave's capacity, verticalize its data center footprint, and enhance its ability to meet customer demand, potentially accelerating growth and long-term value, but only at the right price and structure.

Negatives

• The Core Scientific Board's decision to sell the company followed a flawed process, without deliberative market analysis or seeking alternative counterparties.
• The valuation offered in the merger is considered inadequate, with the implied value of consideration representing less than the fair value of the business and materially less than Core Scientific's current trading price.
• The merger structure lacks downside protection for Core Scientific stockholders, leaving them fully exposed to volatile fluctuations and declines in CoreWeave stock value.
• CoreWeave's stock exhibited extreme volatility (161% annualized) and high short interest (36% of free float) prior to the merger announcement, indicating significant risk.
• The impending lock-up expiration for CoreWeave insiders and early investors created a risk of increased selling pressure and stock price decline, which materialized post-earnings.
• The Board's acceptance of a 'no-shop' provision and substantial break-up fee severely limited the company's ability to solicit other proposals post-announcement.
• Core Scientific's management team stands to receive nearly $200 million in compensation, with PSUs vesting at the maximum 300% level upon merger closing, which Two Seas Capital suggests may have influenced their support for the transaction.

Risks

• Core Scientific stockholders are exposed to extreme stock price volatility of CoreWeave, as the transaction lacks downside protection mechanisms like a collar or cash consideration.
• Heavy short interest in CoreWeave's stock (36% of free float) at the time of merger negotiation underscored the risk of value decline.
• The expiration of CoreWeave's IPO lock-up period shortly after its Q2 earnings report created a risk of significant selling pressure from insiders and early investors, which could further depress CoreWeave's stock price.
• If the merger is terminated due to failure to obtain stockholder vote, Core Scientific will remain an independent public company, and its stock will continue to trade on Nasdaq, with no payment to stockholders under the merger agreement.
• A termination fee of $270 million may be payable by Core Scientific to CoreWeave under certain conditions if the merger fails and Core Scientific enters into an alternative acquisition proposal within twelve months.

Future Outlook

If the merger agreement is terminated due to the failure to obtain the requisite stockholder vote, Core Scientific is expected to remain an independent public company. Its shares will continue to be listed and traded on Nasdaq, and the company will continue to file periodic reports with the SEC. Two Seas Capital believes Core Scientific has substantial long-term value as an independent entity, particularly given its first-mover advantage in HPC infrastructure.

Management Comments

• Core Scientific's leadership team has consistently expressed confidence that the company can capitalize on the growing demand for energy-dense, application-specific data centers and deliver long-term value for stockholders as the only pure-play company in the public markets focused on high-density co-location infrastructure.
• In May 2025, the management team publicly touted Core Scientific's opportunity to take advantage of one of the biggest shifts in infrastructure in decades and create long-term value for stockholders.

Industry Context

The rapid proliferation of artificial intelligence (AI) and its applications has created an unprecedented demand for compute power, driving a significant shift towards high-performance computing (HPC) data centers. Core Scientific, with its first-mover advantage and access to low-cost power, is well-positioned to become a market leader in this evolving digital infrastructure landscape. The industry has seen a scramble among digital asset miners to reconfigure facilities for HPC, with Core Scientific's unique arrangement with CoreWeave de-risking its business plan and sparking investor interest in the sector.

Comparison to Industry Standards

• CoreWeave's annualized stock price volatility of 161% (March 28, 2025, to July 3, 2025) was more than twice as high as the Nasdaq Composite median and four times as high as the median among AI & Cloud Infrastructure Peers (Alphabet, Amazon, IBM, Microsoft, Nebius, Oracle).
• CoreWeave's short interest of 36% of its free float at the merger announcement was significantly higher than the 3% median for the Nasdaq Composite and 1% among AI & Cloud Infrastructure Peers.
• CoreWeave's stock is noted as the most volatile of any acquirer in a stock transaction over the last 25 years (deals of at least $100 million with 50%+ stock consideration, n=1,203).
• Core Scientific's stock price has remained depressed since the merger announcement, while digital asset mining peers (Argo Blockchain, Bit Digital, Bitfarms, Cipher Mining, Cleanspark, HIVE Digital Technologies, Hut 8, MARA Holdings, Riot Platforms, TeraWulf) are trading significantly higher, and AI and cloud infrastructure companies are up, with comparable data center REITs (Digital Core REIT, Digital Realty Trust, Equinix, Keppel DC REIT) largely flat.

Corporate Governance

Stakeholder Impact

• Shareholders: Face a proposed merger that Two Seas Capital believes significantly undervalues their investment and lacks downside protection, potentially leading to a loss of long-term value if approved. They have the power to reject the merger.
• Management: Stand to receive substantial compensation (nearly $200 million) upon the merger's closing, regardless of continued employment, which could influence their support for the transaction.
• CoreWeave: Would gain significant high-performance data center infrastructure, enhancing operating efficiency and de-risking future expansion, if the merger is approved.

Next Steps

• Core Scientific stockholders are urged to vote AGAINST the Merger Agreement Proposal and the Advisory Compensation Proposal at the Special Meeting.
• Stockholders who have already voted for management's proposals on the company's white proxy card have the right to change their vote by submitting the GOLD proxy card.
• The Special Meeting will be held virtually on October 30, 2025, at 10:00 AM Eastern Time.
• Stockholders must pre-register for the Special Meeting by October 29, 2025, at 10:00 AM Eastern Time, to attend and vote electronically.
• If the merger is defeated, Core Scientific is expected to remain an independent public company.

Key Dates

Recommendation

The filing strongly argues that the proposed merger undervalues Core Scientific's stock and that the process and structure are flawed. Two Seas Capital believes Core Scientific has significant long-term value as an independent company. Therefore, the recommendation for investors is to 'hold' their shares and vote AGAINST the merger, with the expectation that rejecting the current offer will either lead to a better acquisition proposal or allow Core Scientific to continue as an independent entity, where its stock is believed to have substantial upside potential.

Keywords

Core Scientific, CoreWeave, Merger, Acquisition, Proxy Solicitation, Shareholder Vote, DEFC14A, Two Seas Capital, HPC, High-Performance Computing, Digital Asset Mining, Data Centers, Stockholder Value, Valuation, Corporate Governance, SEC Filing