trump dwac

Last year, Digital World Acquisition (NYSE: DWAC) announced that it would take former US President Donald Trump’s TMTG (Trump Media & Technology Group) public. While it wasn’t the biggest of SPAC mergers, it is certainly among the most controversial, if not the most.

DWAC has delayed the filing of its second-quarter earnings report “because additional time is needed to prepare the financial statements.” The company intends to release the report within the grace period provided by the SEC.

DWAC expects its net loss to be around $4.7 million in the second quarter of 2022 and $6.5 million in the first half of the year. Since it is a blank cheque company, it does not have any revenues and was created for the sole purpose of merging with another company.

In the SEC filings, DWAC ticked “yes” to whether there would be “any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements.”

SPAC mergers gained in popularity in 2020 and 2021 as they became the preferred mode to raise money for loss-making growth stocks. SPAC mergers help companies go public much sooner than the traditional IPO route. Also, during the SPAC mergers, the target companies can provide business forecasts, something which is barred in traditional IPOs.

SPAC Bubble Has Burst

Meanwhile, most de-SPACs are finding it hard to deliver on their 2022 forecasts which raises doubt on whether they would be able to meet the long-term guidance. Since a lot of these companies, including TMTG are in the pre-revenue stage, they provided long-term forecasts to support their valuations.

DWAC-TMTG merger provided scant information, including on the PIPE (private investment in public equity). It did provide an indicative valuation but overall it seems to capitalize on Trump’s popularity.

DWAC is also seeking shareholder approval to extend the merger timeline with TMTG. The merger is anyways facing troubles including subpoenas from federal agencies and the SEC. Allegedly, DWAC had identified TMTG as a merger target before forming the company. It is illegal for SPACs to be in talks with merger targets before the merger.

DWAC-TMTG Merger Faces Scrutiny

Notably, while several SPACs have been hunting for targets for months and Bill Ackman dissolved his SPAC as he could not find an attractive target, DWAC “identified” TMTG in quick time. Amid the optimism over Trump’s Truth Social, DWAC went as high as $175 but now trades near $30.

Truth Social has been trying to capitalize on Trump’s popularity. Trump’s Twitter account was suspended in 2020 following the Capitol Hill violence. Truth Social has gained some traction among conservatives but otherwise, many have been complaining about the user experience of the Twitter-lookalike.

A lot of Trump supporters have been buying DWAC stock even as the overall sentiments towards SPACs have been quite negative.

DWAC Joined the List of Meme Stocks

DWAC joined the list of meme stocks as it soared to astronomical levels. However, it has come crashing down since then even as it is still comfortably above the IPO price—a rarity in current markets. The merger continues to face troubles that are only compounded by Trump’s personal legal battles. However, DWAC got some respite when Elon Musk walked out of the deal to acquire Twitter.

Most of the newly listed companies are trading at a discount amid the sell-off in growth stocks. These include Rivian, which was the biggest IPO of 2021 as well as Grab which was the biggest SPAC merger ever.

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