What is DWAC? The Donald Trump SPAC
The last 18 months have been one of the most peculiar times in modern finance. From crypto surges and NFTs, to meme stocks and all-time market highs. In October, Digital World Acquisition Corp. (NASDAQ: DWAC), a SPAC, was yet another stock to experience a meteoric rise, and has joined the fray of peculiar financial securities, becoming one of the most popular ticker symbols on Reddit forum Wall Street Bets. However, DWAC has a uniquely political twist: It is the SPAC bringing public what will become (post-merger) the Trump Media and Technology Group, a firm created and being run by former President Donald Trump.
Since shares of the SPAC began trading in Mid-October at $10/share (the traditional issuance price of SPAC shares), DWAC experienced a volatile rise to as high as $175/share, representing a 1650% increase. It then briefly stabilized (if such a word may be used for a stock like this) around the $55-$75 range, but has since fallen to just below $40. Trump’s media and technology company, which shares of DWAC translate to ownership of, currently has no released products, but it has made a statement that its “mission is to create a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.” At this time, it appears that the Trump-owned company will create and publish its own social media platform, which will compete with Facebook (Meta), Twitter, and other digital platforms that have banned or suspended the former president’s accounts at or soon after the end of his presidency.
What is a SPAC?
SPACs, or Special Purpose Acquisition Companies, have been around for many years, but have exploded in popularity compared to two years ago. They are essentially “blank check companies” whose purpose is to find a private firm and use the cash provided from going public to acquire or merge with it (Investopedia, 2021). When investing in shares of a SPAC, particularly before a merger is announced, investors are really betting on the SPAC’s management team, anticipating they will acquire a good target company at a reasonable price. Sometimes, SPACs will target specific industries or sectors, such as environmental firms, electric vehicles, digital media firms (such as what DWAC is doing), but they can also leave their area of focus much wider. Usually, the firm will have an agreement with investors that if a suitable acquisition target is not found over a given period of time, such as two years, the SPAC will be liquidated and investors will be returned $10/share. This is a key part as to why SPACs will normally trade very closely to their $10 issuance price prior to the merger.
Why is Trump Starting a Media Company?
The media, or rather its corruption, was one of the first major parts of Trump’s political dogma, and it has remained central to him and his followers’ broader ideology. Essentially, Donald Trump has repeatedly argued that the media, specifically the liberal or “left” media distorts the truth to make him sound like a fool or a heartless tyrant (or, sometimes, both). In doing so, they will further the agendas of the democrat and, according to many republicans, their “bad” ideas. These news sources, such as CNN, defend that they provide relevant, no-nonsense, fact-checked reporting, and that Trump truly does live up to everything they report on him.
Donald Trump is perhaps the US President best known for his social media usage. However, after the riot in the US Capitol on January 6th, 2021, many major platforms banned his accounts, Twitter being the widest known instance of this. These sites argued that the President's posting and rhetoric on their sites was a catalyst driving deep division and outrage among the American people, and so in accordance with their Terms of Service the President’s accounts were deactivated. The move sparked outrage from the president and was, as one may expect, a point of great controversy. The former president promised that he would not simply fade into obscurity once his term ended, and this SPAC merger appears to be one of the ways Trump is seeking to further his movement and maintain his supporter base while a private citizen again. The media platform will be named TRUTH (BBC, 2021), the very thing Trump claims the other platforms fail to maintain, and it will serve as a direct competitor to the platforms that silenced Donald Trump.
The Valuation: Worthy of Meme-Stock Status
The Story behind DWAC and the Trump media platform is just as intriguing as the rest of the 45th president’s legacy, and the stock’s extreme upward movement has been the result of retail investors and politicians alike showing their financial support for TRUTH. At least two republican senators, Larry Bucshon and Marjorie Taylor Greene, have bought into the SPAC, and the ticker has trended amid the stock’s rise on the infamous Wall Street Bets (CNBC, 2021) However, like other meme stocks such as AMC and GameStop, the valuation, when based on traditional metrics, is absurd. As of now, the Trump Media and Technology Group has no real product, and so no sales or other revenue. Yet, the SPAC, as of November 23, 2021, has a market capitalization of over $1.4 billion. In addition to this, the company has already encountered legal challenges, including potential violation of security laws that could lead to postponement or rejection of the intended SPAC merger (New York Times, 2021). There is no real way to justify the currently implied valuation of Trump’s company, as with all meme stocks, and unfortunately it is a very real possibility that many investors will be hurt very badly if and when the market corrects the price to reflect this. Ironically, those most adamant followers of Trump may in fact be the ones likely to lose the most on DWAC.
*Edited by Sean Francis
Works Cited
BBC. (2021, October 21). Trump to launch New Social Media Platform Truth Social. BBC News. Retrieved November 24, 2021, from https://www.bbc.com/news/world-us-canada-58990330.
Blasi, W. (2021, October 22). Anthony Scaramucci is rooting for DWAC, thinks it will stop Donald Trump 2024 run. MarketWatch. Retrieved November 24, 2021, from https://www.marketwatch.com/story/anthony-scaramucci-is-rooting-for-dwac-because-he-thinks-it-will-keep-donald-trump-from-running-in-2024-11634922085.
Rainey, C. (2021, October 25). DWAC update: Meme stock crowd looks to push Trump's SPAC to the Moon. Fast Company. Retrieved November 24, 2021, from https://www.fastcompany.com/90689634/dwac-price-reddit-trump-spac?partner=rss&utm_campaign=rss%2Bfastcompany&utm_content=rss&utm_medium=feed&utm_source=rss
Yahoo! (n.d.). Trump got de-platformed. could the 'decentralized crypto cloud' save him? Yahoo! Finance. Retrieved November 24, 2021, from https://finance.yahoo.com/news/trump-got-de-platformed-could-the-decentralized-crypto-cloud-save-him-103258928.html.
Young, J. (2021, November 20). Special purpose acquisition company (SPAC). Investopedia. Retrieved November 24, 2021, from https://www.investopedia.com/terms/s/spac.asp.
YunLi626. (2021, November 3). GOP rep. Larry Bucshon is the second house lawmaker to disclose Trump Spac Stock Purchase. CNBC. Retrieved November 24, 2021, from https://www.cnbc.com/2021/11/02/gop-rep-larry-bucshon-bought-stock-in-trump-spac.html.
