Digital World SPAC Merger Not Worth the Paper It’s Written On

The first time I wrote about Digital World Acquisition Corp (NASDAQ:DWAC) and DWAC stock, I gave Donald Trump the benefit of the doubt

DWAC stock: An image of wooden blocks that say SPAC over a series of one dollar bills.
Source: Dmitry Demidovich/ShutterStock.com

“There is no question he brings a different mindset to social media, which ought to create some real buzz with a particular segment of the American population,” I wrote on Nov. 17.

“But in the end, social media platforms run on advertising. So after TRUTH Social blows through the My Pillows of the world, the company’s sales executives will be free to do plenty of golfing during the day because they’ll have very few takers from corporate America.”

I rated it a D. That was being kind. 

The Digital World SPAC (special purpose acquisition company) merger is not worth the paper it’s written. Here’s why.

DWAC Stock Is 4x Too Expensive

As far as I’m concerned, DWAC is worth no more than $10 a share; the price SPAC investors paid for their units in September when it went public, raising $250 million to go out and find a merger candidate.

I’m sure none of the investors thought it would be with The Donald’s fledgling media empire. However, now that the shares are trading around $52 — going as high as $175 in October — I’m sure the investors late to the party who bought in the $60s are praying the combination gets approved. 

If it doesn’t, look out below. 

I find it amazing that Digital World has a market capitalization of $1.9 billion for a company with zero revenue and not much hope for any until sometime in 2022.

It Needs to Fill In the Blanks

InvestorPlace’s Mark Hake recently discussed why the SPAC needs to file an SEC form S-4, which lays out the X’s and O’s of the deal, including how it intends to make money. That’s a genuine concern when you consider the reluctance of advertisers to associate with the Trump brand. 

Now and forever. 

As my colleague reminds readers, an investment in DWAC stock is more aptly described as a venture capital seed investment than an actual SPAC deal. 

Here’s all that we don’t know about the Trump Media and Technology Group (TMTG):

Who is the CEO? This would be none other than Congressman Devin Nunes. Trump’s media empire made the announcement on Dec. 6. Nunes, who has served the state of California since 2003, starts his new job in January 2022. As far as I know, the man has absolutely no social media experience.  

Who is hosting the Truth Social media platform? 

According to Hake, that would be RightForge, a global internet infrastructure company whose homepage states “Our Code Is Liberty,” an inference to its right-leaning political opinions. Further down the homepage, it says, “Built for Free Speech and a Free Speech.”

That makes me want to puke. 

Not because it’s right-leaning, every person living in a democracy is free to believe what they want to think, but it just reeks of heavy-handedness.

I don’t know about you, but when I look for an internet hosting company, I’m not seeking a business that believes a “second internet is needed for American survival.”

If I have to be told by an internet infrastructure company what America needs to survive, the country’s in a lot worse shape than I imagined.

How much money does it make? It doesn’t. It’s in the same boat as a lot of biotech development companies. Only those companies are working toward developing drugs and therapies to keep Americans healthy. That, to me, is a far better example of what America needs to survive.

Who is Patrick Orlando, the head of the Digital World SPAC? 

His biggest accomplishments appear to be his MIT engineering degree, a stint at Deutsche Bank as a derivatives trader, and the founder of Benessere Capital, an investment banking advisory firm. It all looks good on paper, but it doesn’t mean squat when it comes to assessing the strengths and weaknesses of a potential merger candidate. The closest Orlando gets to dirtying his hands is a stint as CFO for a wholesale sugar merchant.

However, the list of unknowns is a block long. I’m skeptical that DWAC stock is going to produce an S-4 anytime soon. As my colleague says, it needs to fill in the blanks, or it’s done like dinner.

For me, DWAC’s merger with TMTG is a prime example of why SPACs have gotten a bad reputation. It’s worth $10 max.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 


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