Trump’s Social Media Platform To Merge With SPAC: An Insider’s Look At SPACs

Following the recent announcement of a definitive merger agreement with Trump Media & Technology Group (TMTG), shares of the special-purpose acquisition group (SPAC) Digital World Acquisition Corp. (NASDAQ: DWAC) skyrocketed by more than 350% in just one day of trading and continued to rise for the remainder of the week.  

GameStop , eat your heart out.

For two day in a row, trading was automatically halted as result of continued volatility. The merger, which has not yet been approved by the investors of DWAC, values former President Trump’s new social media company at $1.7 billion and will provide the company with nearly $300 million in cash should it be completed.

As I have written on several occasions, SPACs, also known as blank-check companies, are an alternative way of going public. These companies raise money from investors and then go public with the intent on finding a public company to complete a reverse merger. Following two years of exponential growth, SPACs have made lots of headlines in business news—also yielding significant criticism that they are taking advantage of certain securities law provisions. SPACs typically go public with the intent to find a company within an 18-month to 24-month period. The DWAC deal is unusual since they announced a merger with TMTG less than a month after they raised nearly all of their capital. Professor Usha Rodrigues of the University of Georgia noted to the NY Times noted that this was “far outside the norm.”

Despite apparent demand in the market, large anchor investors in DWAC itself seem to be more hesitant to go forward with the deal. Saba Capital sold much of their stake on Thursday following the announcement. Meteora Capital’s chief investment officer Vik Mittal noted they were not informed of any imminent deal when they invested last month. Lighthouse Investment Partners sold its entire stake in DWAC which accounted for 11.2% of the company. On TMTG’s side, the former president reportedly did not inform his political team of the deal, despite some Republican groups, including the RNC, using the announcement for fund-raising purposes.

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This isn’t your grandfather’s stock market

Assuming we put aside the unusual nature of the deal itself, the trading in the wake of the announcement is newsworthy in and of itself. For two consecutive days, the trading of DWAC’s shares were automatically halted by NASDAQ . Under its own rules, trading was temporarily stopped should the price of a security move more than 10% in less than five minutes. When shares resumed trading, following the previous day’s halt, shares surged higher and were immediately halted again, only to resume and be halted repeatedly. At one point, the shares surged to $175 after beginning the week at just under $10. This represents an 800% rally in just 2 days of trading.

Part of this rally stems from the unique abilities the Internet has afforded the groups of average retail investors. 

“Online platforms such as Reddit and investing apps such as Robinhood allow retail investors to overcome traditional collective action problems,” said Professor Sergio Alberto Gramitto Ricci of NYU Law School. “Retail investors can gather online from any corner of the world and share their investing strategies with potentially infinite other retail investors. This gives them an unprecedented collective power, especially in light of the minimization of transaction costs associated with holding shares directly.” 

He and Professor Christina Sautter of Louisiana State University believe this will allow retail investors to gain an increasing amount of power over the corporate sector. 

However, much of the volatility stems from political aspect of this deal. The former President has never shied from garnering attention and using it for his business endeavors. The question now is how much of this trading is based on actual expectations of business success relative to the political considerations. Professor Ann Lipton of Tulane noted much of the trading is likely “the conservative version of expressive trading.” 

‘Political meme stock’

Regardless of the controversy Trump’s business will likely attract, there is still the potential for a positive outcome here. The company, in a statement from Oct. 20, claimed its mission is “to 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.” Setting aside the politically charged components of this mission statement, tech companies like Google , Twitter, and Facebook continue to face significant criticism for their roles in political discourse. Some, like Google and Facebook, are looking at anti-trust accusations from Congress, the FTC, and the DOJ. Perhaps this new platform may provide the beginning of viable competition to these giants. 

Lipton called it “the equivalent of a political meme stock.”

The question is whether or not the former President’s social media platform can live up to the claims it’s made to investors and the public alike. Meme trading of shares can only drive a company for so long. To add a final layer of intrigue to this deal, Trump’s company is (un)surprisingly scarce on the details here. In its corporate overview, it fails to list any officers, employees or any operations at all. It does, however, include claims that it plans to compete with the likes of Disney+, Netflix , as well as Amazon and Google in the future. 

Only time will tell whether or not these claims will be fulfilled. In the meantime, DWAC and TMTG must convince their own shareholders to approve the deal. With shares trading hands as quickly as they are, that may be easier said than done.

If you have any comments, suggestions or feedback, please send them to my research assistant John Livingstone john.livingstone@case.edu or to me anat.beck@case.edu.