Digital World SPAC outperform other SPACs despite regulatory risks

310
2
Digital World SPAC outperform other SPACs despite regulatory risks

SPAC linked to Trump's venture surpasses others in the sector as a whole.

The shares of the Blank-check acquisition firm that agreed to merge with former President Donald Trump's social media venture have outperformed every other special purpose acquisition company, SPAC, despite the regulatory risks facing the deal and investors now snubbing the vast majority of such vehicles.

The deal for Digital World Acquisition Corp, which inked an $875 million deal in October to merge with Trump Media Technology Group Corp TMTG, is currently the best performing SPAC stock, according to SPAC Research.

The shares of Digital World ended up trading at $73.12 on Friday, well above their $10 initial public offering price. The debt on the combined entity has a value of close to $13 billion.

This is despite TMTG not having rolled out its social media app yet and the regulatory risks facing the deal. Senator Elizabeth Warren asked Securities and Exchange Commission Chairman Gary Gensler last month to investigate the proposed merger for potential violations of securities laws around disclosure.

The SEC hasn't said if it will take any action. Digital World received enquiries from the SEC and the Financial Industry Regulatory Authority FINRA last month, but they didn't provide any details on their nature.

The stock rally in Digital World is driven by Trump supporters and retail investors because of the financial underperformance of most SPACs.

The average trading price of all 114 SPACs that have announced deals that are yet to close has been boosted by DWAC's share performance. The average SPAC, excluding DWAC, is trading at $9.88 a share, which is lower than the average trust value of about $10.05, according to SPAC Research.

According to Jay Ritter, a professor at the University of Florida, SPACS have not performed well against the broader market by 25 per cent during the past decade. Many of the deals' bullish projections didn't come to pass.

DeSPACs have had a negative average return in a rising market. Ritter said this pattern continued in 2021.

If regulators allow the deal to go through, Digital World shareholders are certain to vote for it, given the stock's performance. The vote will be held in the following weeks, according to people familiar with the matter, as Digital World expects to issue a proxy statement with details on the deal in February.

Apple Inc.'s App Store lists Feb. 21 as the date that Trump's new social media app, Truth Social, will be available to download.

According to regulatory filings and Reuters, Digital World CEO Patrick Orlando and other SPAC insiders paid $11.8 million for founder and placement share in the SPAC that are now worth $620 million.