IPOs + SPACs of Interest

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>>> Donald Trump just got the green light to return to Wall Street


Matt Egan

CNN

Feb 15, 2024


https://finance.yahoo.com/news/donald-trump-just-got-green-173804022.html?.tsrc=fp_deeplink


Months after leaving the White House, former President Donald Trump began plotting his return to Wall Street. That return, delayed by years of regulatory and legal hurdles, is now on the verge of becoming a reality — and it could make Trump a fortune.

US regulators have finally given the green light to a controversial merger between Truth Social owner Trump Media & Technology Group and a blank-check company. The blessing from the Securities and Exchange Commission removes the last major obstacle holding back the deal.

The merger, if approved by shareholders, would pave the way for Trump Media to become a publicly-traded company — one where Trump will own a dominant stake that could be worth billions.

Digital World Acquisition Corp., the blank-check firm, announced that on Wednesday the SEC signed off on the merger proxy for the deal. A date for a shareholder vote will be set by Friday.

“It does look like this deal is going to reach the finish line now — after more than two years of delays,” said Jay Ritter, a finance professor at the University of Florida.

Trump stake could be worth $4 billion

Shares of Digital World, a special purpose acquisition company, or SPAC, spiked 15% on the major milestone. The stock has nearly tripled this year, fueled by Trump’s political success in the Republican presidential primary, and now the merger progress.

Ritter estimates the merger could pave the way for about $270 million of cash coming into Trump Media, funds the company could fuel Truth Social’s growth.

Trump is set to hold a dominant position in the newly-combined company, owning roughly 79 million shares, according to new SEC filings.

The former president’s stake would be valued at $4 billion based on Digital World’s current trading price of about $50.

Of course, as Ritter notes, it would be very difficult for Trump to translate that paper wealth into actual cash.

Not only would Trump be subject to a lock-up period that would prevent he and other insiders from selling until six months after the merger, but the new company’s fortunes would be closely associated with the former president. That could make it difficult for Trump to sell even after the lock-up period expires.

‘This is a meme stock’

Moreover, there are major questions about the sky-high valuation being placed on this media company.

“This is a meme stock. The valuation is totally divorced from the fundamental value of the company,” said Ritter.

Digital World’s share price values the company at up to about $8 billion on a fully diluted basis, which includes all shares and options that could be converted to common stock, according to Ritter.

He described that valuation as “crazy” because Trump Media is generating little revenue and burning through cash.

New SEC filings indicate Trump Media’s revenue amounted to just $1.1 million during the third quarter. The company posted a loss of $26 million.

Since the merger was first proposed in October 2021, legal, regulatory and financial questions have swirled about the transaction.

In November, accountants warned that Trump Media was burning cash so rapidly that it might not survive unless the long-delayed merger with Digital World is completed soon.

Shareholder vote looms

Now, Trump execs are cheering the green light from the SEC.

“Truth Social was created to serve as a safe harbor for free expression and to give people their voices back,” Trump Media CEO Devin Nunes, a former Republican congressman, said in a statement. “Moving forward, we aim to accelerate our work to build a free speech highway outside the stifling stranglehold of Big Tech.”

Eric Swider, Digital World’s CEO, described the SEC approval as a “significant milestone” and said executives are “immensely proud of the strides we’ve taken towards advancing” the merger.

One of the final remaining hurdles is for Digital World shareholders to approve the merger in an upcoming vote.

The shareholders have enormous incentive to approve the deal because if the merger fails, the blank-check firm would be forced to liquidate. That would leave shareholders with just $10 a share, compared with $50 in the market today.

“Anyone who holds shares and votes against the merger is crazy,” said Ritter, the professor.

“Then again, I might argue that everyone holding DWAC shares is crazy,” he added, referring to the company’s thin revenue and hefty valuation.

Matthew Tuttle, CEO of Tuttle Capital Management, said he’s not surprised by the ups and downs surrounding this merger.

“The thing about Trump and anything related to Trump is, love him or hate him, there is going to be drama,” said Tuttle, who purchased options to buy Digital World shares in his personal account. “Really, I would not have expected anything less.”

Going forward, Tuttle said Trump Media’s share price will live and die by how everything plays out for Trump personally — from his legal troubles to his potential return to the White House.

“Anything bullish for Trump is going to be bullish for the stock,” said Tuttle.

Trump is no stranger to Wall Street, where he has a history, one marked by bankruptcies.

Although Trump has never filed for personal bankruptcy, he has filed four business bankruptcies — all of them linked to casinos he used to own in Atlantic City.

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