As former President Donald Trump’s legal troubles drag on, his social media company faces a new challenge regarding its deal with Digital World Acquisition Corp (NASDAQ:DWAC). The special purpose acquisition company (SPAC) has struggled for months to complete its merger with the Trump Media & Technology Group (TMTG). One month ago, it received a green light to extend the deadline, but since then, DWAC stock has continued to primarily trend downward.
Now, a new development is unfolding that further calls the company’s future into question. Reuters reports that according to a recent regulatory filing, the companies have amended the merger agreement to include a clause that allows for the deal’s termination.
This doesn’t necessarily mean that either party will use this option. But the fact that it has been added to the merger agreement raises some important questions. Most specifically, is the end approaching for the DWAC SPAC deal? Let’s take a closer look at the pending deal and assess what this news means for investors.
What’s Happening With DWAC Stock
This week isn’t off to a good start for DWAC stock. Shares fell during pre-market trading and they haven’t rebounded. As of this writing, the stock is down 2% for the day amid a fair amount of volatility.
Will Trump opt to use the self-destruct button that he now has at his disposal? To do so wouldn’t make much sense. But then again, Trump’s history of making poor business decisions speaks for itself. The more likely scenario would be that Digital World’s leadership will opt to terminate the deal and return all remaining funds to its investors.
Last week brought a serious strike against Trump when a state Supreme Court judge ruled that he and his sons had committed fraud. According to NPR, that puts the family’s business empire at significant risk.
The problems facing DWAC stock didn’t start with that ruling. Far from it. But now Digital World has even more reason to want to cut ties with Trump. As noted, his legal problems have been mounting for months and aren’t likely to be settled anytime soon.
As InvestorPlace has reported, the list of indictments against him are likely to spell the end for DWAC stock:
“Ultimately, this downward trajectory has led to an inevitable death sentence. Its journey began when Truth Social’s user base declined by more than 90% a few months after the app launched. When Elon Musk took over Twitter, it compromised the platform’s growth prospects even more. The stock has survived longer than I initially thought it would. But if Donald Trump is sent to prison, Truth Social will collapse and with it, any chance of a merger. The final bells for both companies are already starting to sound.”
The Bottom Line
At this point, it would certainly make sense for Digital World to want to cut ties with Trump before things get worse for him. Even if the former president doesn’t end up going to prison, the list of reasons not to do business with him is only growing.
Being linked to him has proven to be very bad for many people, as evidenced by the list of his associates who have faced criminal charges. And it certainly hasn’t helped DWAC stock, which has mostly fallen since its initial rise before Truth Social’s launch.
Either party could terminate the deal, but it would be a much more strategic decision for Digital World.
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.
