Trump Launches Social Media Company Through A SPAC

Former President Donald Trump has merged his private entity Trump Media and Technology Group with Digital World Acquisition Corp. (DWAC), a Special Purpose Acquisition Corporation (SPAC) and will soon launch a new social network called Truth Social.

The deal values the Trump media company at about $875 million, including debt, with a potential additional earnout of $825 million in additional shares (at the valuation they are granted) for a cumulative valuation of up to $1.7 billion depending on the performance of the stock price post-business combination.

Also called a blank-check company, a SPAC such as DWAC is a shell company that raises money and trades on a stock exchange to merge with a private firm such as Trump’s and take it public. The private company then replaces the SPAC in the stock market. SPAC mergers have become popular alternatives to traditional initial public offerings, especially for startups that can make business projections. Those aren’t allowed in typical IPOs.

SPACs had become a popular way for companies to go public in recent years. Companies that have used SPACs to go public include DraftKings, Virgin Galactic, Opendoor, and Nikola Motor. Guidance and warnings issued earlier in the year from the SEC about the financial reporting and auditing considerations for companies merging with SPACs, and another SEC statement about accounting, financial reporting, and governance issues pertaining to SPACs had resulted in the market for SPACs shifting to a more cautious footing.

The stock price of the DWAC skyrocketed on extremely heavy trading volume last week after news of the merger. Shares of DWAC more than quadrupled to $45.50 in the first trading session following the deal announcement.

DWAC’s stock surged 356.8% to close at $35.54 per share. Trading in the SPAC was halted multiple times due to volatility. At one point, the stock was up more than 400% to hit a high of $52.

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