BREAKINGVIEWS-CoreWeave deal stages risky resistance experiment

By Robert Cyran

NEW YORK, Aug 5 (Reuters Breakingviews) - All the AI computing knowhow in the world isn’t going to make it much easier to value Core Scientific CORZ.O. CoreWeave CRWV.O, which rents out tools used to develop and run artificial intelligence systems, thought it had the right answer, agreeing to a $9 billion stock swap with the high-tech power supplier. Doing a deal amid a market frenzy, however, turns out to be harder than it looks.

Since it unveiled the acquisition about a month ago, CoreWeave shares have tumbled some 30%. The terms neglected to include any sort of upper or lower bound on the share movements, meaning that Core Scientific owners are now being offered about $13 apiece instead of the original $20 or so, a 66% premium to the undisturbed price in June when news surfaced of discussions between the two companies. Some investors are sufficiently aggrieved to consider voting against the merger, according to the Financial Times.

Recutting the offer probably will be hard to do. Given how volatile AI stocks are, and assessing just how durable the business is, complicates matters. A collar would have been smarter at the onset, but it might be trickier to structure after the fact. Adding a cash sweetener is equally problematic given the amount of investment that $55 billion CoreWeave has ahead of it. Moreover, the target’s shares are still trading higher than they were before deal talks leaked, implying that the takeover is helping underpin the valuation.

The companies said they expect the deal to close in the fourth quarter, but more than 80% of CoreWeave’s Class A shares are locked up until later next week, as stipulated by its initial public offering earlier this year. Widespread sales might heap additional pressure on the stock, and hence the deal value. There’s no date set yet for Core Scientific shareholders to vote on the transaction and new AI developments seem to appear by the hour. This corporate combination makes all kinds of strategic sense, but from a valuation perspective it’s a risky experiment.

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CONTEXT NEWS

Some Core Scientific investors are considering voting against an agreed all-stock sale of the company to data-center lessor CoreWeave following a 30% fall in the buyer’s share price, according to a Financial Times report on Aug. 5 citing unnamed sources.

CoreWeave unveiled plans on July 7 to buy computing power provider Core Scientific for about $9 billion, based on the July 3 closing prices of both companies. Under terms of the transaction, Core Scientific holders will receive 0.1235 of a CoreWeave share for every Core Scientific share, an exchange ratio that implied more than $20 apiece on the day of the announcement. As of Aug. 4, the figure had dropped to about $13.