Digital World Acquisition Corp (NASDAQ:DWAC) has started another week in the red after receiving more bad news. Several private investment in public equity (PIPE) investors have issued their termination notices, effectively cutting ties with the controversial merger. This means a collective loss of $138.5 million in PIPE investment. According to an 8K form filed with the Securities and Exchange Committee (SEC), all investors gave notice of their termination decisions last week between Monday and Friday. Despite initially rising this morning, DWAC stock has since reversed direction and plunged back into the red. As of this writing, it is down 1% for the day. While that may not seem like a monumental decline, investors should be concerned with the bigger picture.
Let’s take a closer look at the forces keeping DWAC stock in the red.
The Point of No Return for DWAC Stock
It’s been months since its ties to Donald Trump helped DWAC stock even slightly. The company on its own has been plagued by enough lawsuits and SEC probes to make any investor nervous. But since the former president’s legal troubles have continued to mount, so have the concerns regarding the stability of his company. Truth Social is the only holding of the Trump Media and Technology Group (TMTG) and its future remains highly questionable at best. Politico media expert Jack Shafer recently speculated that it “might reduce itself to the smoke and char of bankruptcy.” The fact that the app has been banned from the Google Play Store due to inappropriate content helps support that theory.
That news is bad enough on its own but DWAC recently experienced another important failure. Earlier this month, the company voted on extending the merger deadline but could not gain the 65% “yes” votes it needed. Instead, it is pushing the deal back three months. While the book isn’t closed on the Trump trade yet, as InvestorPlace contributor David Moadel noted, this development certainly makes DWAC stock a “dangerous bet.” Now the withdrawal of multiple PIPE investors is poised to make things even more complicated. And there is likely more to come. As Reuters reports:
More investors could pull out in the next few weeks, sources said, as they can terminate anytime after the deadline. Many are waiting for DWAC to propose more preferred terms to PIPE investors.
The Bottom Line
The writing is on the wall for DWAC stock. If more investors have the option to pull out of the troubled deal, they likely will. Given everything that has transpired in just September 20222 alone, people who rushed to back the deal during DWAC’s early rise to market prominence have more than enough incentive to withdraw their cash while they still can. As InvestorPlace contributor Dana Blankenhorn reports:
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.
Blankenhorn is correct that DWAC stock is far below that price point and at $16 per share, it is unlikely to even get close. Even while the deal’s next deadline approaches, it is unlikely that the stock will see any significant momentum. On top of it all, fellow Trump trade Rumble (NASDAQ:RUM) has been performing well since going public recently. Investors now have a better option for betting on conservative political trends than DWAC. It may be the final nail in the company’s coffin.
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.
