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Tuesday, August 9, 2022

Trump-tied SPAC seeks Wall Street support

Day traders and Reddit enthusiasts helped fuel a spectacular rally in Digital World Acquisition Corp shares, which reached a closing high of $94.20 last month before leveling out to recently trade around $60.

The blank-check company tied to Donald Trump’s new media venture has already won the support of retail traders who have sent the stock up almost 500%. Now, big Wall Street investors are getting another opportunity to pile in, even as some financial firms have distanced themselves from doing business with the former U.S. president.

Digital World Acquisition Corp. has begun scheduling meetings with prospective investors for a private investment in public equity, or PIPE, transaction to support its merger with Trump Media & Technology Group, according to people with knowledge of the matter. While the PIPE’s terms haven’t been finalized, it may exceed $500 million in size, said one of the people, who asked not to be named because the talks are private.

Any fresh capital would add more funding to launch the media conglomerate, which plans to initially get off the ground with a social network called Truth Social that would give Trump a platform after he was banned from Facebook and Twitter. PIPEs also help to lend credibility to special purpose acquisition company mergers and can provide a cash buffer if early investors decide to redeem their shares.

Traditionally, PIPEs are priced at $10 a share, in line with the initial public offering price of most SPACs. But day traders and Reddit enthusiasts have helped fuel a spectacular rally in Digital World shares, which reached a closing high of $94.20 last month before leveling out to recently trade around $60. In light of those gains, any PIPE is expected to price above $10, one of the people familiar with the matter said.

The prospect of lucrative profits could lure investors in, especially if a Trump PIPE deal is structured similarly to the capital injection that supported electric-vehicle maker Lucid Motors’s merger with Churchill Capital Corp IV., which created Lucid Group Inc. PIPE investors in that transaction signed up at $15 a share, ensuring a huge paper profit over the $52.94 it closed at before the deal was announced. Despite turbulence in the ensuing months, Lucid has so far paid off for those investors, trading Monday at $47.61 as of 3:15 p.m. New York time.

A Digital World representative declined to comment, while a spokesperson for Trump Media didn’t immediately respond to a request for comment.

The two entities said last month that their merger agreement valued the combined company at $875 million, including debt, with the potential for an earnout that values the company at exactly double that, or $1.7 billion. Growth plans for Truth Social — set to launch in beta mode this month and roll out throughout the U.S. in the first quarter of 2022 — are initially set to be funded by the SPAC’s cash in trust of $293 million, they said at the time.

Digital World said in another filing that it has an ability to raise a PIPE, and noted that Trump Media’s senior management may be “reasonably requested” to participate in investor meetings and roadshows. But Trump himself may not be present for the entirety of the roadshow for the PIPE deal, said one of the people familiar with the matter.

Some Wall Street hedge funds have already distanced themselves from Digital World. Boaz Weinstein’s Saba Capital Management quickly dumped its entire stake of unrestricted stock in the SPAC upon learning of its agreement with the Trump entity. Lighthouse Investment Partners and D.E. Shaw & Co. also sold shares.

“Many investors are grappling with hard questions about how to incorporate their values into their work,” Weinstein said at the time. “For us, this was not a close call.”

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