The Trump SPAC Pitch Is Weird

The Trump SPAC Pitch Is Weird


Yesterday we discussed the $1 billion private investment that Trump Media & Technology Group is planning to raise from investors when it merges with Digital World Acquisition Corp., a special purpose acquisition company that is taking TMTG public. The basic point was that, in this $1 billion PIPE (private investment in public equity) investment, TMTG will sell stock to hedge funds for $1 billion, at a 40% discount to the trading price of the stock. The hedge funds will then immediately turn around and sell that stock to public retail investors, very much not at a discount. So the hedge funds will get an instant 67% return (buy at $24, sell at $40, etc.) at the closing of the merger, as a reward for committing money to Trump now. If the stock is below $16.67 at closing they will not get that return, and if it’s below $10 they’ll lose money. The stock closed at $43.81 yesterday and is up today, so it’s a decent bet that it will be above $10 when the deal closes, but it’s a weird company and a lot could go wrong.

Anyway there’s a lot more in yesterday’s post but I wanted to add a few miscellaneous points here.

First, yesterday afternoon Representative Devin Nunes said he will resign from Congress to become chief executive officer of TMTG . Sure! It is not clear whom he is replacing? Most statements out of TMTG name Donald Trump as chairman, but its press releases and investor presentations don’t seem to mention a CEO. The merger agreement was signed by Donald Trump as chairman. When TMTG was negotiating to go public and raise a $1 billion PIPE deal, did it have a CEO?

“Nunes, who boasts of being a dairy farmer, will begin his new career despite having no apparent prior experience working in the tech industry or as an executive,” says CNBC , but he did once unsuccessfully sue Twitter for allowing people to make fun of him. So of course he is the natural choice to run a social media company whose mission is to “fight for the First Amendment protections and freedoms of all Americans” against “Tech Monopoly Censorship” and to “encourage an open, free, and honest global conversation without discriminating against political ideology.” Sure! “I’m humbled and honored President Trump has asked me to lead the mission and the world class team that will deliver on this promise,” said Nunes , referring presumably to the world-class team named in the TMTG investor presentation (“subject to change”) and including Josh A., Billy B., Vlad N., Ryan L., Steve E., Tom M., Ryan L. (a different one?), Mortada A., Brandon B., Simo S., I could go on with this for a while, it is very soothing, but I guess I will stop here. Sure! It does feel like every public action by this company is designed give the impression that it is a joke.

Second, my main point yesterday was that the PIPE was designed as a way to sell stock to retail investors through the PIPE investors: The PIPE investors are not putting up their money as long-term investors in TMTG; they are getting stock that they can dump immediately at a 67% profit. To do that, TMTG will need to file a registration statement for their sales, and the SEC will need to declare it effective; usually SPAC companies do this after their mergers close, but TMTG and DWAC have committed to do it before the closing. I pointed out that, under the terms of the deal, if the PIPE investors cannot freely sell their shares at closing then TMTG has to pay some penalty interest to the PIPE investors. But I neglected to add that this is also a closing condition of the PIPE purchase agreement: If the registration statement is not effective, the PIPE investors don’t have to close on their investment. (See section 2.3(b)(iii) of the purchase agreement.) They have to put up their billion dollars only if they can immediately dump the stock they get.

Third, I pointed out my favorite slide in the TMTG investor deck yesterday — the ones with the team’s first names — but I really do recommend savoring the whole thing. For instance here are the absolutely magnificent slides 22 and 23, labeled “Infrastructure”: How do you think they presented those slides in investor meetings? Donald Trump: At this point I’d like to turn it over to our chief technology officer, Josh A.

Josh A.: […]

source The Trump SPAC Pitch Is Weird

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