Digital World Acquisition Corp. (NASDAQ:DWAC) is still on a losing streak. DWAC stock, the special purpose acquisition company (SPAC) partner of Trump Media & Technology Group (TMTG), has been struggling for months as problems abounded for its merger partner’s social media app, Truth Social, and Donald Trump.
The former U.S. president’s legal troubles don’t seem to be slowing down, ranging from regulatory probes into DWAC’s board to the FBI raid of his Mar-a-Lago estate. While DWAC stock saw a bump in late July as speculation rose that Trump would announce his 2024 campaign, the momentum did not last. Less than two weeks later, shares fell after the blank-check company asked for an extension on the merger window. Now it wants to put to motion a vote at its upcoming shareholder meeting.
That isn’t the only bad news this week. Internet hosting provider RightForge reported Truth Social has ceased its payments despite a contractual obligation. The company alleges it is owed $1.6 million by TMTG. This combination of bad news has pushed DWAC stock down as much as 8% for the day. Let’s take a closer look at what investors can expect from both companies in the coming weeks.
More Bad News for DWAC Stock
TMTG has not issued a statement on the claims made by RightForge. But Trump’s history of not paying vendors is all too well known. In 2016, USA Today conducted an investigation which revealed that hundreds of people have accused him of not paying bills. This list has included plumbers, painters, builders and even his own real estate agents and lawyers.
In this context, his company refusing to pay a web contracting firm is not surprising at all. This may not initially sound like bad news for DWAC stock, but Fox Business reports it likely means the company’s finances are in “significant disarray.”
The deadline extension news may be even worse. For DWAC stock, everything rides upon the successful closing of the TMTG merger. When Kerrisdale Capital issued a damning short report making the bearish case for DWAC, it centered around the well-constructed thesis that the merger wouldn’t close.
Since then, the company hasn’t done much to assure investors that the merger will move forward smoothly. Now the SPAC is asking investors to vote on extending the merger deadline by one year at the Sept. 6 shareholder meeting. If the motion passes, DWAC will have a new deadline of Sept. 8, 2023.
The Bottom Line
The fact DWAC feels it needs more time to conclude the merger should worry investors. No company puts off a merger for good reasons. The blank-check firm is clearly worried about the stability of its SPAC partner. Markets Insider reports that it has said it “may be forced to liquidate if a business combination doesn’t materialize.”
If a company is floating that possibility to investors, that means it has seriously entertained it. And if investors are presented with more evidence that liquidation is likely, they are going to start offloading shares while they still can.
DWAC stock has lost more than 60% of its value over the past six months. That type of performance is enough to scare most investors away, particularly when it hasn’t reported a positive growth catalyst since Truth Social’s launch. But the merger looks less and less likely to happen with every passing week. Any investors still holding DWAC stock won’t be for long.
On the date of publication, Samuel O’Brient 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.
