Day trader and Reddit enthusiast helped fuel a stunning rally in Digital World Acquisition Corp shares which reached a closing high $94. 20 last month before leveling out to recently trade around $60.
The blank-check company tied to Donald Trump’s new media venture has already won the support of retail traders who have sent the stock up almost 500%. Big Wall Street investors now have another chance to get in, even though some financial firms have stopped doing business with the United States. president.
According to people familiar with the matter,
Digital World Acquisition Corp. began scheduling meetings with potential investors to discuss a private investment, or PIPE transaction, to support its merger of with Trump Media & Technology Group. One person familiar with the matter said that although the terms of the PIPE have not been finalized, it could be larger than $500 millions in size. This is due to the private nature of the talks.
Any additional capital would increase the funding needed to launch the media conglomerate. The company plans to start with Truth Social, a social network that would give Trump a platform. PIPEs can also be used to give credibility to special purpose acquisition companies mergers and to provide a cash buffer if early shareholders decide to redeem their shares.
Traditionally, PIPEs are priced at $10 a share, in line with the initial public offering price of most SPACs. Reddit users and day traders have contributed to a dramatic rally in Digital World shares. It closed at $94.. 20 last month before leveling out to recently trade around $60. In light of those gains, any PIPE is expected to price above $10, one of the people familiar with the matter said.
Investors could be lured in by the prospect of lucrative profits, especially if a Trump PIPE agreement is structured in a similar way to the capital injection that helped support electric-vehicle maker Lucid motors’s merger and acquisition with Churchill Capital Corp IV. Lucid Group Inc. was formed. PIPE investors in that transaction signed up at $15 a share, ensuring a huge paper profit over the $52. 94 It closed before the deal was announced. Despite turbulence in the ensuing months, Lucid has so far paid off for those investors, trading Monday at $47. 61 as of 3: 15 p.m. New York time.
A representative from Digital World declined to comment. A spokesperson for Trump Media did not immediately respond to a request to comment.
The two entities stated last month that the merger agreement valued the combined company $875million, including debt. There is the possibility of an earnout, which would value the company at $1.7 billion, or exactly twice that amount. According to them, the SPAC’s cash-in-trust of $293million million was initially to fund the growth plans for Truth Social. They said that the company will launch in beta this month and expand across the U.S. during the first quarter of 2022.
Digital World stated in another filing that it is able to raise a PE and that Trump Media’s senior management might be “reasonably asked” to attend investor meetings and roadshows. One person familiar with the matter said that Trump may not be able to attend the entire roadshow for the PIPE agreement.
Some Wall Street hedge fund managers have already distanced theirself from Digital World. After learning of the Trump agreement, Saba Capital Management by Boaz Weinstein quickly sold its entire unrestricted stock stake in the SPAC. D.E. and Lighthouse Investment Partners also sold shares. Shaw & Co. also sold shares.
” Many investors are asking difficult questions about how to incorporate their values in their work,” Weinstein stated at the time. “This was not a close call .”