Digital World Acquisition Corp., the SPAC that agreed to merge with former President Donald Trump’s social media company, continues to defy logic.
Take the performance of the stock. Even though the proposed merger between Trump’s company and the SPAC could get liquidated soon — and both are under investigation by multiple regulators — the stock still trades at twice its net asset value.
That’s the case even though investors failed to vote Tuesday in favor of giving Digital World another year to get the deal done, leading to a selloff in the stock.
Digital World shares fell 15 percent Tuesday on the news, but it still trades around $21 — which means investors would do well to vote for the extension. If they don’t, the SPAC could be forced to liquidate, giving them $10.20 per share instead.
The Trump SPAC is already the most heavily shorted SPAC in the market, according to S3 Partners. And even before the failed extension vote, some short sellers thought the deal would never close, given the various probes, including by the Justice Department and the Securities and Exchange Commission, swirling around it.
Its latest problem is that retail investors, who typically do not vote, own the majority of Digital World’s shares. Even an appeal on Truth Social, the site operated by Trump’s media company, doesn’t seem to have moved them to vote for the extension.
Digital World CEO Patrick Orlando told shareholders in a special meeting Tuesday he would push back the deadline, initially scheduled for Tuesday, until noon on Thursday after failing to win the support of the 65 percent of shareholders that is required for the extension, according to Reuters.
If Digital World still doesn’t get enough shareholder support by Thursday, management has the right to extend its life without shareholder approval by up to six months. But it will have to pay millions of dollars to do so.
“It is unclear whether DWAC will pursue this option and if it would provide enough time for regulators to reach a conclusion on whether to allow the deal to proceed,” according to SPAC Research.
Trump Media stands to gain $1.3 billion if the deal is completed. The company would receive $293 million from the SPAC in addition to $1 billion from a group of investors in the form of a PIPE, or private investment in public equity.
The PIPE investors would also have to agree to extend their commitment, as it will expire on September 20 unless the deal is completed, SPAC Research noted.
The slowdown is a result of the regulatory uncertainty surrounding the deal, which has to be approved by the SEC before it can be consummated.
Both Digital World and Trump Media, as well as their executives, have received subpoenas from a federal grand jury in the Southern District of New York, according to a June disclosure by Digital World. Another probe is being undertaken by the SEC, which is investigating whether Digital World agreed to the deal ahead of the IPO against SEC rules. And the Financial Industry Regulatory Authority is investigating trading activity surrounding the announcement of the merger.
Digital World’s stock soared as high as $175 per share when it first announced a deal with Trump’s media company last October, but it quickly fell back. This year, the stock has plunged about 60 percent, most of that before Tuesday’s failed vote.
However, the top institutional investors stuck with it through the second quarter and even added to their stakes, according to the latest 13F regulatory disclosures.
Pentwater Capital, its top institutional shareholder, increased its holdings by more than 50 percent during the second quarter. Susquehanna International Trading, the third largest holder, stayed virtually flat during the quarter. And Citadel Securities, the fifth largest, boosted its shares by 1,990 percent during the quarter.
Trump professed to be nonplussed by the turn of events. “I don’t need financing,” he wrote on Truth Social following news of the failure of the SPAC to get an extension. “I’m really rich,” he wrote.
