Hedge funds sells stakes in Trump SPAC firm DWAC after merger news

DWAC doesn’t itself record any business revenues or profits, but through the proposed merger with Trump Media and Technology Group (TMTG), investors in DWAC anticipate gaining exposure to TMTG. Digital World was set up as a special purpose acquisition vehicle, or SPAC, which raises money by going public to finance a future merger — in this case, Trump Media. The merger was announced on Oct. 21, 2021, and Digital World now is trying to get 65 percent of its roughly 400,000 shareholders — most of them retail investors — to approve the extension for the deal.

  • TMTG’s initial growth will be funded with DWAC’s cash held in a trust account of $293 million, assuming no redemptions and DWAC stockholder approval.
  • While not typically a concern of investors, there are several requirements for the DWAC.
  • But it’s also worth noting that the implied value of Twitter no doubt has plunged over the past few months.
  • The SEC’s order further states that, in a later Form S-4 filed with the Commission following the announcement of the proposed merger with TMTG, DWAC mischaracterized and omitted information about the history of its interactions with TMTG.
  • DWAC is a special purpose acquisition company, or SPAC, that announced plans to merge with Truth Social parent company Trump Media & Technology Group in October 2021.

The approval follows an intense get-out-the-vote campaign and comes just three days before Digital World’s Sept. 8 liquidation deadline. A failure of the vote would have required the SPAC to dissolve and return $300 million to shareholders, depriving Trump Media & Technology Group of funds from the deal. A top post on the WallStreetBets message board Friday featured what looked like the user’s equity portfolio, touting daily gains of over $10,000 from betting on DWAC. The post, which called the former president “Daddy Trump,” quickly drew more than 800 comments. Highbridge Capital Management and ATW Spac Management declined to comment when asked if they retained stakes in DWAC. The other hedge funds didn’t immediately respond to CNBC’s requests for comment.

Andy is a 2022 graduate of Villanova University with a major in Finance and minors in Economics and Accounting. He has served as an active member of the University’s student-managed “Wildcat Fund” and has also worked as an executive member of the Entrepreneurship Society. He has how to trade litecoin a variety of interests in investment management, but is a particular fan of value investing strategies. Andy is a member of Beta Gamma Sigma and is continuing to develop his financial analysis skills as a Credit Research Analyst at PGIM Fixed Income on the Leveraged Finance team.

How DWAC Makes Money

The SEC’s order further states that, in a later Form S-4 filed with the Commission following the announcement of the proposed merger with TMTG, DWAC mischaracterized and omitted information about the history of its interactions with TMTG. If the SEC approves the proxy and the contemplated transaction is consummated, PIPE investors will dilute outside passive minority investors into oblivion. After the trust money is redeemed or spent, the remaining value is 0ish. But there is a long, long way to go and a lot of potholes along the way. For that kind of story, investors should be looking for a fundamental discount.

  • In theory, this arrangement gives regular people the opportunity to effectively invest in private companies before they go public.
  • According to Julian Klymochko who runs a SPAC-focused exchange-traded fund, he’s never seen a SPAC deal get voted down.
  • Anything but an absolutely airtight case – ‘airtight’ perhaps defined as including an actual email from an executive saying “yes, this is illegal but we’re going to do it anyway” – is going to elicit similar claims.
  • It’s not hard to imagine many people buying stock in this company simply for the lulz.

Again, though, the company hasn’t yet launched any of those things despite having claimed that it was going to introduce an early version of Truth Social in November. Lighthouse had owned 3.2 million shares, or 11.2% of the special purpose acquisition company, which trades on NASDAQ, according to a Sept. 30 regulatory filing. If those existing SPAC shareholders leave — as they are kind of financially incentivized to do — then regular people buying the stock could wind up owning shares of a company that’s less valuable than promised. CNBC recently determined that 97 percent of SPACs that have not yet completed a merger are trading below their initial $10 share price.

But didn’t this specific thing already happen? I remember hearing Trump launched a social network.

If you do not currently own DWAC but want to invest in Trump Media, buy post-merger during the VWAP period. A year ago, when Digital World was faced with a similar need to delay the liquidation date, it took several postponements to get enough shareholders to approve the move. But the company is in a time crunch this year, because it cannot delay the vote on the extension beyond the Sept. 8 liquidation date. Either of the two companies can decide to terminate the deal if their respective boards no longer believe the merger will benefit shareholders.

Donald Trump’s new social media SPAC, explained

Admittedly, $5 billion is a huge haircut from the ~$20 billion implied when DWAC stock touched $100. That $20 billion figure simply seemed untenable – but that aggressive valuation is far from the only reason DWAC stock has fallen. DWAC and Trump’s team did not respond immediately to requests for comment. Authorities in Georgia are also investigating Trump, the frontrunner for the 2024 Republican nomination, over his attempts to overturn his loss in the 2020 presidential election.

Why Has DWAC Dropped?

TMTG intends for TMTG+ to be a subscription based direct-to-consumer video streaming service that will include unique programming. TMTG+ intends to offer programs including, but not limited to blue collar comedy, cancelled shows, Trump-specific spy put call ratio programming, faith-based shows, family entertainment, shows that embrace the Second Amendment, and news. TMTG intends to license, produce, and deliver news, sports, and non-woke entertainment content through this platform.

There is no public indication that Trump or his company holds any shares of DWAC. The former president is not listed on disclosures as an officer or major investor in the SPAC. At the time this story was published, shares of the DWAC SPAC are already forex trading analysis approaching the record for number of shares traded in one day. That extreme volatility has only lifted the stock price to $25, though, meaning we’re not seeing the same kind of coordination that propped up the valuation of, say, GameStop.

The company was founded on December 11, 2020 and is headquartered in Miami, FL. The PIPE investors’ conversion price will most likely be at a discount to the listed share price, determined by the value-weighted average price (VWAP) over the 10 consecutive trading days after the close of the merger (the VWAP period). If the VWAP is between $56 to $16.67, the PIPE investors will receive a 40% discount to the VWAP on their conversion. For example, if the VWAP is $35, then the conversion price will be $21. That would mean a $1,000 convertible preferred will convert into 47.62 common shares (for a total conversion of 47.62 million shares).

What’s Happening With DWAC Stock Today?

Nevertheless, the PIPE investors selling, and shorting, will cause Trump Media’s share price to fall, hence the term death spiral. The PIPE investors have a price target of $16.67 to get their maximum allotment of 100 million shares. Whether they will be able to push the price to that level is difficult to know, but they will try. The problem is, this convertible preferred PIPE is constructed as a death spiral, the lower the Trump Media share price, the more common shares the PIPE investors get. Therefore, the PIPE investors will do everything in their power to push the share price down so they can maximize the number of shares they are allocated.

The withdrawal of DWAC shares as physical certificates generally require Medallion Signature Guarantee – a certification stamp that guarantees the signature on a share certificate is authentic. Overall market sentiment has been neutral on Digital World Acquisition Corp (DWAC) stock lately. DWAC receives a Neutral rating from InvestorsObserver Stock Sentiment Indicator. There’s trouble in Trumpland – the SPAC taking his Truth Social app public falls out of favor with investors after two execs jump ship.There’s trouble in Trumpland – the SPAC taking his Truth Social app public falls out of favor with investors after two execs jump ship. In 2013, Netflix (NFLX) generated ~$3.5 billion in streaming revenue, roughly equal to the projected 2026 revenue for TMTG+.

Much of the commentary has focused on whether Musk would let Trump back on to the platform, ostensibly removing a key competitive advantage for Truth Social, which has tied its branding to the former president. Post-merger, then, at the current price TMTG would have a market cap of about $6.4 billion, and an enterprise value right at $5 billion (the company is raising $1.25 million in cash and presumably will garner another ~$180 million from warrant exercise). But the size of the decline alone doesn’t make the stock a buy, a lesson being emphasized over and over in this market, where so many growth names have fallen 70% – and then another 70%. DWAC doesn’t necessarily have to follow that same trajectory, but with valuation still a reasonable concern and the long-term strategy unclear, a cheaper price alone doesn’t make the stock attractive. If you are currently a DWAC shareholder and want to be a Trump Media shareholder, sell before the merger closes and buy back during the VWAP period. I suspect that the share dump will start before the consummation of the merger; therefore, I would not wait until the last minute to sell your shares.

As of this writing, the stock is down 2% for the day amid a fair amount of volatility. The managing member of ARC Global is listed in a regulatory filing as Patrick Orlando, who is also the CEO of DWAC. Other funds that held stakes as of last month, before the merger was announced, were Highbridge Capital Management, Lighthouse Investment Partners, K2 Principal Fund, ATW Spac Management, Boothbay Fund Management and RG Capital Management. “I knew that for Saba the right thing was to sell our entire stake of unrestricted shares, which we have now done,” founder Boaz Weinstein said in an e-mailed statement cited by Bloomberg. If you haven’t heard of either of them, you may have heard of some of the high flying hedge funds that have invested in the SPAC, like Highbridge Capital Management, Lighthouse Partners, K2 Principal Fund, and Saba Capital Management.

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