Usually when a public company gets acquired, its stock quickly jumps to reflect the purchase price, a clear declaration of the asset's new value.

But when AI cloud provider CoreWeave announced its deal to purchase Core Scientific on Monday, the opposite happened. Core Scientific shares dropped sharply.

The selloff highlights the risk to Core Scientific shareholders from the all-stock transaction. The purchase price is dependent on a five-day average price of CoreWeave stock when the transaction closes, expected to be in the fourth quarter.

The trading dynamics suggest that investors expect a big decline in CoreWeave stock before it has a chance to seal its deal for Core Scientific.

To be sure, CoreWeave is a pricey stock -- and there are reasons to worry about its valuation. But there's also plenty of logic to its pursuit of Core Scientific and its data-center infrastructure. CoreWeave was already leasing space from Core Scientific for its rapidly growing AI cloud, and the merger would vertically integrate the companies.

Before the announcement CoreWeave traded at $165.20. Its all-stock deal formula of 0.1235 CoreWeave shares for every Core Scientific share implied a Core Scientific takeout price of $20.40.

CoreWeave stock closed at $153.05 on Wednesday, bringing down the deal value to $18.90 for Core Scientific shareholders. But Core Scientific's share price are even lower than that, closing at $13.43 on Wednesday, down 25% from before the announcement, and 29% below the implied deal price.

That's the kind of discount that usually makes arbitrage players giddy with excitement. These short-term traders step in to take advantage of the dislocation, making a bet that the deal will go through at a higher price, with the traders pocketing the difference.

But this deal provides challenges, even to risk-taking arbs. Crucially, Core Scientific seems to have had little leverage in the talks. There is no "price protection" that is typically seen in mergers involving shares as payment. This can be a price "collar" that sets a ceiling and floor for the deal value, or a fixed amount for the whole transaction. Without that price protection, Core Scientific shareholders are at risk of seeing the deal value collapse if CoreWeave's stock price declines significantly before the acquisition closes.

And that seems to be what investors are expecting. "Using the options market, you can currently buy or sell shares of CoreWeave in November for $115," says Kevin Mak, a trader and director of the Real-Time Analysis and Investment Lab at Stanford Graduate School of Business. "This is not a judgment, this is what the market is pricing it at."

On that basis, Core Scientific's current price of $13.43 makes sense -- 0.1235 times $115 gets you a price of $14.20.

CoreWeave shares have risen by 283% since its IPO based on its triple-digit revenue growth, and a tight, illiquid market for its shares, which amplifies moves up or down. CoreWeave's market capitalization is 8.7 times analyst estimates for its sales over the next 12 months, compared with a 4.4 ratio for the Nasdaq Composite index. Many investors believe that CoreWeave's price will come back to earth, just based on that high valuation. The average price target from Wall Street analysts is $94.56, which would value Core Scientific shares at $11.68 at the close of the transaction.

CoreWeave's stock faces another hurdle in the coming months: Early private investors had an opportunity to sell some shares during the initial public offering in March, but they are free to sell as many as they want after the "lockup" period expires in August. A wave of insider selling would flood the public market with new shares, depressing the stock price.

One of the first CoreWeave investors, Magnetar Financial, owns over 30% of the stock, worth $14.7 billion, likely representing around three-quarters of the firm's portfolio. Any move to decrease its concentration risk by selling stock once the lockup expires could hurt CoreWeave stock.