Digital World Acquisition (NYSE: DWAC) has been in freefall amid multiple concerns ranging from the delayed merger, exodus of PIPE (private investment in public equity) investors, slower-than-expected growth, and Elon Musk’s proposal to buy Twitter on original terms.
DWAC is a blank cheque company that is taking former US President Donald Trump’s TMTG (Trump Media & Technology Group) public. The merger was announced last year and DWAC stock soared to almost $100, which was ten times its IPO price. However, the stock has since cratered and now trades near $16.
DWAC has to seek stockholder approval to delay its merger with TMTG. The company has now delayed the voting on the proposal four times and has now set the stockholder vote for November 3. Trump has already said that in case the merger does not go through, he would keep the company private.
Most of DWAC’s stockholders are retail investors who typically don’t participate in such voting. However, in order to delay the merger, DWAC needs approval from at least 65% of the stockholders. If it fails to get the approval, it would need to dissolve in which case investors would get $10 per any accrued interest in the SPAC trust account.
DWAC Stock Falls after it Delayed Stockholder Vote
DWAC has been delaying the stockholder vote as it hasn’t been able to garner the desired votes. 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.
The PIPE investors are also having second thoughts about their investments. DWAC had previously lined up $1 billion in PIPE investment for TMTG. In a recent SEC filing, it said that it has lost $138.5 million in financing from these investors. DWAC also changed its address to a UPS Store in Miami.
The subscriber growth of Truth Social has been far from satisfactory and even Trump has just about 4 million followers there, which is way below the nearly 90 million Twitter subscribers he had before his account was banned.
While Truth Social is available on Apple, its Android launch got delayed. The App was made available for pre-order on Android but Google has barred it from the App store over content moderation issues.
TMTG Has Seen Top-Level Exits before DWAC Merger
Some of the top executives have quit TMTG this year. Trump appointed former Congressman David Nunes as the CEO despite him having no experience in running a social media company. Trump has reportedly been upset with the slow growth of the platform.
Meanwhile, in a world where almost all the SPACs as well as de-SPACs are trading below the IPO price, DWAC is comfortably above the IPO price. A lot of Trump supporters have been buying DWAC stock even as the overall sentiments towards SPACs have been quite negative.
The slower-than-expected growth in Truth Social’s subscribers is another headwind for TMTG. In August, William Wilkerson, a senior vice president at Trump Media, filed a whistleblower complaint with the SEC, alleged securities violation.
Speaking with the Miami Herald he said, “One way or another, this company is going to go bankrupt.” Notably, TMTG has been trying to encash Trump’s popularity. According to Wilkerson, “The platform had to go beyond the personality of one person.”
Musk Buying Twitter is a Challenge for Truth Social
Truth Social is positioned as an alternative to Twitter whose content moderation policies have not gone down well with many conservatives. However, with Musk now reviving the abandoned Twitter acquisition, TMTG faces yet another challenge. Musk has rediscovered himself as a “free speech aboslutist” and might losen Twitter’s content moderation policies.
Tesla stock meanwhile crashed last week, partially due to Musk reviving the Twitter acquisition. George Gianarikas, senior analyst at Canaccord Genuity has a buy rating on Tesla stock also and sees the stock tripling from these levels. Many other analysts have also turned bullish on the Elon Musk-run company after President Joe Biden signed the Inflation Reduction Act of 2022.
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