Last week, Donald Trump announced his plans to start a new company called Trump Media and Technology Group. According to a pitch deck released by investors last week, the company plans to release a Twitter clone called Truth Social while building a news network and technology business to compete with Amazon and Google.
More importantly, Donald announced his intention to merge his new company with a publicly traded Special Purpose Acquisition Company (SPAC) called Digital World Acquisition Corp (NASDAQ symbol: “DWAC”). If the deal gets SEC approval, Trump Media and Technology Group will end up being a publicly traded company with hundreds of millions of dollars in capital.
The news of the planned SPAC merger sent shares in DWAC … to the moon … as the children say. Before the deal was announced, DWAC was trading at around $ 10. As of this writing, the share price is around $ 83. It was above $ 100 in the last trade and traded at $ 120 for a very short time.
DWAC is now being compared to GameStop, AMC, and other “meme” stocks. Meme stocks tend to skyrocket in value largely due to hype and speculation, unlike traditional financial fundamentals.
And as with any meme stock, some people make huge profits very quickly. And, according to a number of internet reports, Donald Trump makes a Meme share 10 times more money than anyone else in history.
If you believe the hype, which is a pivotal word in this article, DWAC’s soaring share price has increased Donald Trump’s net worth by more than $ 10 billion. Is that considered wrong?
What’s up with all of these SPACs?
Traditionally, a company that wants to go public has primarily been in the market for several years and already operates an established business model with assets, liabilities, income, growth plans … it may even be profitable, but it is definitely not a requirement.
The company hires an investment bank who then walks it through the process of why it should be public and why investors should trust that the price per share they pay today will be much lower than the price per share in the future.
Recently, the financial world has seen the rise of Special Purpose Acquisition Companies (SPACs). A SPAC is essentially a shell company that goes public with no assets or business model. The “special purpose” of the SPAC is to raise a lot of money and then use that money to buy a business. It’s that simple. The SPAC has a finite window of time in which to spend money to get a business. If it does not identify a company and does not complete a SPAC merger within a certain time frame, all of the capital will be returned to investors.
For example, if you’ve read CelebrityNetWorth recently, you might have heard our story about WeWork’s final release on SPAC. This SPAC enabled former CEO Adam Neumann to regain billionaire status.
WeWork tried to go public in the traditional way in late 2019. Shortly before the planned IPO, WeWork’s highest private valuation was $ 47 billion. When its investment bankers tried to pique interest in a public version of WeWork with a market cap of over $ 80 billion, there was no interest. As it turned out, there was no interest at any level of market capitalization. WeWork withdrew its IPO plans, Adam Neumann was ousted, and a lot of people laughed at the failure.
Fast forward to last week when a SPAC called BowX merged with WeWork. The end result is a public version of WeWork (NYSE symbol: “We”), which currently has a market cap of $ 10 billion.
Digital World Acquisition Corp.
I’m skipping a few big steps to keep this article relatively short, but long story short, DWAC has made a deal with Donald to bring Trump Media and Technology to the public with a valuation of $ 875 million. The deal would raise an additional $ 875 million for Trump if he meets some (previously unknown) criteria.
When the $ 875 million valuation agreement was signed, DWAC’s stock was $ 10. So when the stock was trading at $ 100, it wouldn’t have been wrong to say that the company’s valuation was around $ 9 billion. When the stock was trading at $ 120, it wouldn’t have been wrong to say that the company’s valuation was around $ 12 billion.
Because of this, some reports are circulating that Donald Trump’s net worth has increased by $ 10 or $ 12 billion in the past few days.
Not so fast…
There are a number of problems with this jumping to conclusions.
First and foremost, this deal is still extremely steamy. As in, substance-free and not really real. As mentioned earlier, when a SPAC merges with another company, the target company usually has a business. Revenue. Financial assets. Benefit. Employee. Desks. Chairs. When BowX SPAC worked with WeWork, WeWork still operated thousands of office space. WeWork had sales of $ 3.2 billion in 2020 … it also lost around $ 3.2 billion so it wasn’t profitable, but the plan is to strengthen this delta so that it eventually becomes one profitable office rental business.
The Trump Media and Technology Group seems to be basically just a power point pitch deck today, a deck that sets some extremely lofty goals.
Not only does the deck claim that it will build a Facebook / YouTube / Twitter killer in Truth Social, but it also claims that it will create competitive alternatives to Amazon Web Services and Google Cloud. But remember, nothing has been built yet. It DETERMINES it.
Second, this deal has yet to be approved by the SEC and then actually closed, which is far from guaranteed. The whole deal is very up in the air and could fall apart at any moment. In the meantime, who knows what will happen to the stock. The stock was down 11% today after two large funds flooded with dire predictions of disaster and uncovered short selling.
After all, we don’t know how much of the merged company Donald will actually own. He doesn’t technically own anything from DWAC today. So if DWAC is worth $ 10 billion, technically none of that value belongs to Donald. So that is the ultimate answer to the heading of this article.
No. Donald Trump did NOT add $ 10 billion to his net worth this week.
BUT! Donald is in power in the negotiations with DWAC. Donald would be wise to charge an extremely high stake in any company that is ultimately worth more than $ 875 million. After all, a week ago it was planned to merge with a valuation of $ 875 million. If Trump Media and Technology Group is ultimately worth more, it is 100% down to Donald’s hype.
At some point in the new months, DWAC and Trump publicly file an S-4 filing with the SEC. This filing will list the ownership structure and financial status of the proposed Trump Media and Technology Group. Then the shareholders of DWAC have to vote on whether they agree to the proposed ownership structure and the financial plans. If they vote no, they can pull the carpet out of the floor and withdraw all the money from the SPAC. If they vote yes, Donald will actually become a major owner of a publicly traded technology company.