Digital World Acquisition (NASDAQ:DWAC) stock fell 17% on Sept. 20, then recovered 4% overnight as the soap opera surrounding its purchase of Truth Social continued.
Truth Social was founded by former President Donald Trump after he was kicked off Twitter (NASDAQ:TWTR), as a social network “immune to cancel culture.”
DWAC stock was trading on Sept. 21 at $19.40/share but would be worth just $10 if the acquisition doesn’t happen. A vote to approve the merger was recently set for Oct. 10.
As the SPAC Turns
In the latest episode, CEO Patrick Orlando is negotiating with investors who are part of its Private Investment in Public Equity (PIPE). Hedge funds that committed $1 billion to the venture now want terms that would shift risk from the PIPE to Trump and his backers. The PIPE would convert into preferred stock at $33.60 if DWAC traded above $56, but it’s nowhere near doing that.
DWAC is trying to get a 10-day extension on the PIPE negotiation, with reports saying the PIPE wants to reduce its minimum conversion price from $10, which investors would get, if the deal fails, to $2. The lower conversion price would boost their stake. Orlando got his extension by putting $2.8 million into DWAC from ARC Global Investments II, the SPAC sponsor he controls.
DWAC could also lose out pending the outcome of Department of Justice (DoJ) and Securities and Exchange Commission (SEC) investigations into Trump, which could force liquidation.
In addition to the Trump negotiations, DWAC also faces a new, sobering market reality. Most SPACs are bad investments. Chamath Palihapitiya, who once promised to launch 26 SPACs, recently said he will liquidate two after failing to find merger partners.
DWAC Stock: What Happens Next
The fate of DWAC is even more dependent on politics than Rumble (NYSE:RUM), the conservative version of YouTube that recently completed its SPAC merger.
Rumble stock has been down since it opened for trade, but it at least cashed in on its PIPE and has $400 million with which to build a business. DWAC investors must still believe in a place called hope.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
