CRWV all-stock merger proposal with CORZ - a mixed bag
CORZ price suggests market is short CoreWeave or deal risk or both
A mere five days ago, I speculated on the price CoreWeave and other neo-clouds might pay for BTC miners transitioning to AI/HPC data center lessors. Today, we now have one data point answering this question as CRWV signed a definitive agreement to acquire Core Scientific that still needs CORZ merger approval by a majority of shareholders. The transaction is expected to close in Q4.
The transaction is all-stock and the market at this point is loudly voting that CoreWeave stock is due for a drawdown in the next few months:
While many headlines are proclaiming this a $9bn/$20.40/s acquisition based on CRWV’s share price on deal announcement (~450m fully diluted CORZ shares1) , the market is pricing CORZ at ~$6.75bn of equity value.
Given previous sell-side estimates of up to $30/s, this feels like a disappointment for Core Scientific shareholders. The transaction is all-stock and doesn’t have a price floor. CRWV has tripled since the IPO at the end of March and the lock-up period will end in September before the transaction closes. Credit to X user onodacapital1, who points out if the IPO price holds CORZ is being acquired for $5 a share, less than the previous acquisition offer last year in cash. There is an argument here this is a worse offer than the one CORZ rejected a year ago.
My last post was on what the value of 1 GW of data center for AI/HPC compute was worth. This acquisition offer is being billed as $9bn for Core Scientific, which depending on your estimates might end up providing 1-2 GW for CoreWeave. In reality and as is the for any all-stock transaction, the value is what you think the acquirer stock is worth.
The M&A announcement deck is out and the call was held this AM. I do think there were some interesting comments from CoreWeave suggesting this BTC miner transition may become more common and something CRWV feels comfortable with (ex. “we can step in and begin the process of repurposing specific pieces of the infrastructure almost immediately”):
Some slides showing the advantages CRWV gets from acquiring CORZ that might be applicable for future acquirers of data center AI/HPC assets:
If you haircut CRWV by 2/3, you wind up at $3bn on the deal. That is about where I think RIOT 0.00%↑ could produce teens IRRs if you value their BTC business at $2bn (a haircut to book) and the the AI/HPC business at $3bn. Again, this is a big assumption as they are not nearly as far along as CORZ 0.00%↑ is, but I think it’s a fair assumption they have the same or greater GW capacity.
I still am holding onto RIOT. This transaction ultimately is a mixed bag if you’re long BTC-miners-turned-AI/HPC:
the fact that CRWV signed a definitive agreement and laid out some compelling bull cases for data center assets to a neo-cloud acquirer is exciting
however, an all-stock transaction where the acquirer stock is arguably inflated and the acquisition target at one point was down 20% on the announcement doesn’t build a ton of confidence.
I see 363m from last 10-Q as of 3/31. I couldn’t find a way to tie out here and am going to assume this is some share issuance from CORZ in the time since then and possibly CRWV issuing stock for the transaction.