One of the best-performing stocks of 2021 was a SPAC merger between former President Donald Trump’s media company and the parent company of his social media platform, Truth Social.
In 2022, however, the scenario has changed. Shares have fallen and could see further downside based on an upcoming shareholder vote.
What Happened: Digital World Acquisition Corp DWAC, which owns Truth Social, announced a SPAC merger with Trump Media & Technology Group in 2021. If the merger goes through, the combined entity would go public.
The SPAC sold 28.75 million shares in its initial public offering (IPO) counting over-allotment at $10 each.
However, Digital World recently announced a vote to extend the merger deadline one year to Sep. 8, 2023. The original deadline was Sep. 8, 2022.
Digital World Acquisition is largely held by retail traders and could struggle to generate enough votes for the extension. Without the one-year extension, the company has the ability to extend the deadline to March 8, 2023.
Failure to close the deal by the March deadline would result in liquidation.
“Digital World will be required to dissolve and liquidate its Trust Account by returning the then remaining funds in such account to the public stockholders,” according to a public filing.
Along with the extension deadline vote, Digital World also plans to delay its earnings report.
“The registrant is unable to file its Form 10-Q for the quarterly period ended June 30, 2022 within the prescribed time period without unreasonable effort or expense because additional time is needed to prepare the financial statements,” an SEC filing reads.
The company currently has a net loss of $4.7 million in the quarter ending June 30, 2022 compared to a net loss of $740 in the quarter ending June 30, 2021.
Related Link: 7 Key Takeaways From The Donald Trump SPAC Deal
Why It’s Important: Digital World CEO Patrick Orlando is behind several SPACs and already had one liquidate its shares. Yunhong International announced in November that it would liquidate after failing to find a business combination. The liquidation was valued at around $10.31 per share.
Shareholders as of record on Aug. 12 will vote on the extension with a tentative date set of Sep. 6, 2022 to approve the one-year extension.
The Digital World Acquisition SPAC deal has faced setbacks from the start with delays in reports filed and also several investigations. The company has been tied to SEC and Department of Justice investigations, which could delay the merger getting approved. With a shortened window to get the deal to close, liquidation could become a major concern and shares could fall closer to the $10 value they would be worth in this event.
Kerrisdale Capital and former hedge fund manager Whitney Tilson are among the vocal critics of the deal ever getting approved.
“We believe $DWAC will never secure regulatory approval to close its proposed merger with Trump Media & Tech Group,” Kerrisdale previously said.
Tilson highlighted the potential violations by the company of not disclosing it held talks with a merger partner prior to the IPO.
“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 price offering, which is forbidden,” Tilson said. “Mark my words, there’s no way the SEC allows this to go through.”
Legal Woes: The recent FBI raid at Mar-a-Lago also puts pressure on the SPAC. Investors, including those in the PIPE on the deal, may reconsider supporting the company.
The September merger extension vote remains a key catalyst for the company and could be a cause for alarm if the vote is not approved.
Trump is also under investigation for his role in the Jan. 6 attack on the U.S. Capitol building.
DWAC Price Action: Digital World Acquisition shares are trading at $30.55 on Wednesday versus a range of $22 to $101.87 over the last 52 weeks.
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