Hedge fund Two Seas Capital is preparing to launch a proxy battle to block CoreWeave’s planned all-stock acquisition of computing infrastructure provider Core Scientific, warning that the deal’s current structure “undervalues” the target and fails to protect its shareholders, according to a report by the Financial Times.

Two Seas, which holds more than 6% of Core Scientific – making it the company’s third-largest shareholder – said in a letter to investors that it will vote against the transaction and rally other shareholders to do the same unless the buyer improves its financial terms.

The hedge fund’s key objection is the absence of downside protection for Core Scientific investors if CoreWeave’s shares fall further before the deal closes. Since the 7 July announcement, CoreWeave’s stock has dropped 26%, cutting the implied deal value from about $9bn to $6.7bn. Under the agreed terms, Core Scientific holders will receive a fixed 0.1235 CoreWeave shares per share, with no “collar” mechanism to offset market declines.

While Two Seas says it is not opposed to the strategic rationale of the tie-up, it argues for protections such as a collar agreement, which would grant additional CoreWeave shares if the price falls. Such provisions are rare in large-cap M&A because they dilute the acquirer’s shareholders, but the hedge fund says they are essential given market volatility.

The dispute comes ahead of CoreWeave’s earnings release next week and the expiry of its IPO lock-up period, which will allow early investors to sell stock for the first time since its March listing — factors that could add further pressure to the share price.