A SPAC merger to bring Donald Trump’s media company and social media platform public has faced delays and setbacks, and its approval remains tentative.
A prominent hedge fund manager who has been critical of the merger and company since the deal was announced is removing the stock from his list of the worst investments, here’s why.
What Happened: In October 2021, Trump Media & Technology Group announced a SPAC merger with Digital World Acquisition Corp DWAC. The news sent shares of the SPAC significantly higher on the details showing plans for a social media platform, video content and additional media efforts by the former president.
In 2022, hedge fund manager Whitney Tilson released a list of 12 stocks that should be avoided by investors branded as the “Dirty Dozen.” The inclusion of DWAC in the 12 stocks wasn’t a huge surprise, as Tilson had spoken out against the merger several times since the deal was announced.
“To be clear, my view that this is one of the stupidest things I’ve ever seen and that this stock is going to implode, likely within days, has nothing to do with my political views,” Tilson said in his Empire Financial daily email at the time.
Tilson highlighted the risk that the SEC could block the merger, which would send shares back down closer to its $10 net asset value.
“If the SEC acts, the reason it will cite is that there were discussions between DWAC’s CEO and representatives of Trump before DWAC’s initial public offering, which is forbidden.”
The hedge fund manager called the deal a scam and warned retail investors they could get hurt in the short and long term.
“Mark my words, there’s no way the SEC allows this to go through.”
On Friday, Tilson said it was time to remove Digital World Acquisition from the “Dirty Dozen” list. The removal doesn’t come due to Tilson having love for the stock or merger, but is rather based on price.
“So if you’ve been clever enough to short the stock, why do I suggest covering now? Simply put: price.”
With DWAC around $13, Tilson sees less downside for the stock as he still believes the merger will not go through.
“There’s almost no chance the deal to acquire TMTG goes through and it’s likely too late to find another deal, DWAC is almost certain to liquidate and return $10 per share to shareholders.”
With minimal profit potential of $3 from $13 to $10, Tilson sees less opportunity. Alongside the low reward of a drop to $10, Tilson is concerned of the stock trading higher as it is disconnected from fundamentals.
“I’m wary of picking up pennies in front of a steamroller. No matter how likely the outcome, it doesn’t make sense to risk losing tens of dollars (and possibly more than $100) per share to make $3.”
Related Link: Trump SPAC Merger Has Provisions For Presidential Run & Prison Time
Why It’s Important: Tilson removed GameStop Corporation GME from the “Dirty Dozen” earlier this year after the company posted a quarterly profit and showed improvements from cutting costs.
Tilson's original “Dirty Dozen” included many popular meme stocks and retail investor favorites. Here is the list:
Digital World Acquisition Corp ("my single least-favorite stock")
GameStop Corp
AMC Entertainment Holdings AMC
Koss Corporation KOSS
Blackberry BB
Nikola Corporation NKLA
Workhorse Group WKHS
Plug Power PLUG
FuelCell Energy FCEL
Ballard Power Systems BLDP
Nano X Imaging NNOX
Freedom Holding Corp FRHC
The Trump merger drama could continue with a new deadline of September 2023 to complete the SPAC deal. The merger has faced delays and investigations by the U.S. Securities and Exchange Commission and federal grand juries.
A new investigation could also link the merger agreement and payments to Russia and Vladimir Putin, according to a new report.
Other issues like the reinstatement of Trump on Twitter and Facebook, a rejected patent, and executives exiting are among the major issues affecting the merger.
Read Next: Here's How Much Marjorie Taylor Greene May Have Lost From Investing In The Donald Trump SPAC Deal
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
