Trump’s SPAC Is A Suckers Bet

Former President Trump announced on Thursday that a newly formed company, TMTG or Trump Media & Technology Group, would merge with Digital World Acquisition Corporation. Digital World is a SPAC or Special Purpose Acquisition Company that was formed in September and whose stock price had essentially been trading around $10 before the TMTG announcement. On Thursday the stock rose to $52 before closing at $45.50 and on Friday it hit a high of $175 and closed at $94.20.

Digital World (symbol DWAC) raised $299 million on September 8 when it sold 29.9 million shares at $10 each. It appears from TMTG’s press release that essentially all the money that was raised will be available for TMTG to use. The devil will be in the details with the soon to be published SEC filings.

Pushing a $20 billion market cap

Prior to Digital World’s IPO there were 6.25 million shares sold for $25,000 or $0.004 per share as Founder shares, which from reading the prospectus are owned by Patrick Orlando, Digital World’s CEO. After the IPO these shares are a bit less than 20% of all the outstanding shares.

After Digital World’s IPO it had just over 36 million outstanding shares. At Friday’s peak price of $175 it was valued at $6.3 billion and at its close of $94.20 was worth $3.4 billion.

However, In Digital World’s prospectus the company could issue up to 210 million Class A and B shares. In TMTG’s press release it says, “The transaction values Trump Media & Technology Group at an initial enterprise value of $875 Million, with a potential additional earnout of $825 Million in additional shares (using the $10 IPO price) for a cumulative valuation of up to $1.7 Billion depending on the performance of the stock price post-business combination.”

It essentially means Trump and other owners of TMTG, if there are any others, would receive 87.5 million shares initially and an additional 82.5 million depending on the stock price. This could mean almost all 210 million shares would be outstanding and DWAC’s market cap would be $19.4 billion on a company with no revenue.

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A company with no revenue or earnings

As Digital World’s IPO prospectus stated, “We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for this offering. Following this offering, we will not generate any operating revenues until after completion of our initial business combination.”

This can also be said of TMTG. It is a business starting from ground zero with multiple hurdles in front of it. From its press release TMTG’s business will be, “create a rival to the liberal media consortium and fight back against the "Big Tech” companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.” Along with a social network, named "TRUTH Social." It will be a large hill to climb going against established social media companies.

Trump also has a very poor track record running companies. Dan Alexander at Forbes has a very good article outlining the one time Trump ran a public company, Trump Hotels and Casino Resorts, into the ground.

Read the SEC S-4 filing when it is published

Digital World will be filing with the SEC what is called an S-4 filing that lays out the terms of the merger. In an 8-K filing on Wednesday Digital World stated with bolding by Digital World, “The Company’s stockholders and other interested persons are advised to read, when available, the preliminary proxy statement/prospectus and the amendments thereto and the definitive proxy statement/prospectus and documents incorporated by reference therein filed in connection with the Business Combination, as these materials will contain important information about the Company, TMTG, the Merger Agreement and the Business Combination.” 

Some of the key components will be how much will Trump and management be paid (and who they are) and how much stock will be awarded to them.