In politics, Donald Trump has held on to a faithful following even as his legal problems cast doubt on his future. The same goes in one risky corner of the stock market.
(Bloomberg) — In politics, Donald Trump has held on to a faithful following even as his legal problems cast doubt on his future. The same goes in one risky corner of the stock market.
The shares of Digital World Acquisition Corp., the special-purpose acquisition company that’s seeking to take Trump’s nascent media company public, are holding nearly 30% above the approximately $10.40 investors will get back if the merger collapses — indicating they expect the deal to go through instead. That prospect brightened last week, when Digital World said it struck a tentative agreement with the Securities and Exchange Commission to end its probe of the deal, removing one potential hurdle.
But others remain. As it stands, the takeover needs to be completed by Sept. 8 unless backers can persuade shareholders to extend the deadline for a fifth time.
Add to that: Trump Media & Technology Group said it’s only bound by the current terms until the coming deadline, according to an SEC filing, raising the possibility it could walk away. Trump Media’s main asset is Truth Social, the Twitter look-a-like that the former president uses to rally supporters.
“It remains highly unlikely that this business combination will close,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies, which has a SPAC-focused fund. “Also, if you read between the lines, it appears that Trump’s Truth Social wants out of the SPAC merger.”
Digital World shares are still trading above their liquidation value, but they tumbled 86% from a March 2022 peak of $97.54 to around $13.40 as the tie up was delayed and the Federal Reserve’s rate hikes hammered speculative assets like SPACs.
In addition, the deal was held up by the SEC, which along with the Justice Department has been investigating whether Digital World ran afoul of the law by having substantive merger talks with Trump Media ahead of the SPAC’s stock-market debut.
Still, getting more time from shareholders is no sure thing. To get a three-month extension last year, its sponsors had to put another $2.9 million into the company’s cash pile, increasing the pool of funds that would be returned to shareholders. Moreover, the individual investors who snapped up the SPAC’s shares don’t vote with the predictability of professional money managers, providing another obstacle.
The tentative SEC settlement announced last week would force Digital World to pay an $18 million penalty and amend some of its previous filings to comply with the law. It’s not clear how soon that would allow for the SEC’s potential approval of the share-offering prospectus needed to close the deal, nor how it may affect the Justice Department’s investigation.
Representatives for the SPAC and Trump Media didn’t respond to requests for comment.
The SEC deal came days after three investors in the SPAC were charged with using inside information about the plans to make more than $22 million in illegal trades.
Faced with the investigations, Digital World has replaced staff. In March, Patrick Orlando was removed from his role as CEO and chairman, a step the SPAC said would help “restore confidence to the shareholders.” Its finance chief had left earlier, and only two of its original board members are still with the company.
This month, Digital World also named Eric Swider as the permanent CEO.
The SEC deal “removes a big impediment to completing the merger,” said Jay Ritter, professor of finance at the University of Florida. But, he added, “because of the large fraction of DWAC shares held by retail investors, in contrast to the hedge fund investors that normally own most SPAC shares, an extension is not guaranteed.”
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