the money game

What’s the Deal With Donald Trump’s SPAC?

Trump SPACed unexpectedly. Photo: Demetrius Freeman/The Washington Post via Getty Images

The news that Donald Trump was launching a social-media platform through a SPAC — the trendy shortcut to going public, in which a shell corporation merges with a private company — came as a surprise to almost everyone. It certainly happened quickly. While hundreds of SPACs are searching for merger partners (a process that can take more than a year), the deal struck between Trump Media & Technology Group and the publicly traded Digital World Acquisition seems to have taken only a few weeks. The deal became even more intriguing after shares in the SPAC more than tripled once the deal was announced. Retail investors — no doubt many of them fervent Trump supporters — have poured into the stock. It was all the chatter on sites like Reddit and Twitter, and Fidelity reported Digital World Technology was the No. 1 traded stock by its customers during the day.

Trump, despite being besieged by legal troubles, wasted no time crowing about his new venture. “I created TRUTH Social and TMTG to stand up to the tyranny of Big Tech,” Trump, the chairman of TMTG, wrote in a statement. (He plans to call the network TRUTH Social.) “We live in a world where the Taliban has a huge presence on Twitter, yet your favorite American President has been silenced. This is unacceptable.”

Trump’s interest in having his own media company is no surprise, of course. When he first ran for president in 2016, there was considerable speculation that it was just a branding exercise that would eventually end with the launch of a media company. But details about his latest plan are sketchy. The TMTG website has a 22-page deck filled with graphics about Trump’s Twitter following and the platform’s plans to disrupt everything from Facebook to Disney, but there is no financial information.

Digging through the paperwork filed with the Securities and Exchange Commission for the SPAC provides some intriguing details. Here are a few features of Trump’s deal that, as someone who has covered SPACs extensively, jumped out at me:

* Digital World Acquisition was formed in December 2020, shortly after Trump lost the presidential election, and made its initial filing with the SEC to go public in May of this year. After a series of letters to the SEC over the summer — mostly asking the agency to expedite the approval of the IPO — it finally launched in September.

* The SPAC’s CEO is Patrick Orlando, a Florida-based financier who spent five years at Deutsche Bank, though not in areas that lent money to Trump. (Orlando worked with emerging markets and fixed-income derivatives.) Orlando has raised three other SPACs, including one called Yunhong International, which lists its headquarters as Wuhan, China.

* Digital World’s CFO is Luis Orleans-Braganza, a member of Brazil’s parliament and a supporter of its far-right president, Jair Bolsonaro, who may be charged with “crimes against humanity” for allowing the coronavirus to spiral unchecked in the country, killing hundreds of thousands.

* SPAC sponsors aren’t allowed to communicate with potential target companies ahead of the SPAC’s IPO, which is one reason the monthlong courtship here (that is, the period of time between Digital World going public and the announcement of the deal that would turn it into the Trump media business) is quite unusual. Moreover, the company’s registration statement with the SEC ahead of the IPO gave no hint that it was interested in a media company. While noting that Digital World “may pursue an initial business combination target in any business or industry,” the filing said, “it intends to focus on middle market and emerging growth technology-focused companies in the Americas, in [software] and Technology or Fintech and Financial Services.”

* The sole underwriter for the offering was Kingswood Capital Markets, a small firm that recently rebranded as EF Hutton — a name that cheekily harks back to the 1980s, when Trump first burst onto the New York City real-estate and social scenes. The storied Hutton, which catered to retail investors, was sold following the 1987 crash after it was involved in separate scandals involving check kiting and laundering money for the Mafia. The company’s ads remain burned into the memories of many older Americans:

* As with most SPACs, the sponsor — Digital World, in this case — would receive 20 percent of the shares in the IPO for a nominal consideration, and some of those shares were transferred to the CFO and the directors of the company.

* As is also common for SPACs, Digital World lined up several big investors, primarily hedge funds, as anchors. But the Trump deal may prove uncomfortable for a few of them. The most prominent is D.E. Shaw, a large hedge fund founded by longtime Democratic donor David Shaw (he is now retired from the firm). Another is Saba Capital, the hedge fund launched by former Deutsche Bank trader Boaz Weinstein after the crash of 2008. Weinstein’s wife, Tali Farhadian, is an Iranian immigrant and former prosecutor in the Obama administration. This year, she ran unsuccessfully for Manhattan DA as a Democrat.

* But the deal listed no institutional investors for what’s known as a PIPE, which stands for “private investment in public equity.” That is the additional money typically raised once a target is announced and is necessary to consummate the transaction. Big institutional investors usually sign on for the PIPES. But regardless of the institutional appetite for investing in a Trump venture, PIPE financing has become more difficult to secure in recent months as the SPAC game has cooled off.

* Still, the deal has been a resounding financial success so far. Before the merger was announced, the stock closed on Tuesday at $9.96, a slight discount from the $10 per share that had been raised in the IPO. Such discounts have been common as SPAC fever has ebbed in recent months. Under SPAC terms, IPO investors can always redeem their shares and get their initial $10-per-share investment back if they decide they don’t like the deal that’s announced.

The initial Digital World investors who may not want to be involved in a Trump media platform will likely have a chance to do much better than $10 a share, though. As of 2:30 p.m., the stock was trading at close to $44 per share — up 345 percent for the day. It closed around $35.

What’s the Deal With Donald Trump’s SPAC?