Digital World Acquisition (NASDAQ:DWAC) — the special purpose acquisition company (SPAC) — planning to take Trump Media & Technology Group (TMTG) public sued ARC Global Investments II, its biggest investor. At issue is a critical vote that could determine whether DWAC stock goes through with the proposed business combination.
According to a Bloomberg report, the lawsuit — filed in New York state court on Tuesday — represents the latest legal rumbling between Digital World and its former chairman, Patrick Orlando. Although the SPAC fired him, Orlando still holds significant leverage over the blank-check firm via his ability to influence the voting shares of ARC.
The critical issue is time. Per Bloomberg, the merger vote will occur in just two days, on March 22. Digital World insists that ARC must vote in favor of the deal pursuant to a 2021 agreement. That was during the SPAC’s initial public offering. Further, the other issue is money. Should the deal proceed, the windfall could be as much as $4 billion to former President Donald Trump.
Given that Trump faces hundreds of millions of dollars in legal verdicts, the funds are essential.
DWAC Stock Is Another Risky Trump-Related Venture
Notably, Orlando continues to sit on Digital World’s board. In the past, he has challenged how much equity in the combined enterprise ARC shareholders would receive. On the SPAC’s end, its lawsuit contends that “ARC must vote in favor of the merger pursuant to the unambiguous terms of the letter agreement.”
It’s not the first time that DWAC stock faced significant headwinds. Previously, Trump Media co-founders Andy Litinsky and Wes Moss attempted to halt the merger vote over complaints that their 8.6% stake in the business combination would be diluted.
Still, the biggest issue for DWAC stock could be Trump’s less-than-glamorous reputation for business failures. As MarketWatch columnist Brett Arends stated, the former president’s track record is shaky. For example, the Trump Hotels & Casino Resorts implosion caused shareholders to lose almost everything while Trump pocketed millions.
What’s even more glaring is that the official prospectus for DWAC stock is blunt about these failures. “A number of companies that were associated with President Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt,” the document states in part.
Essentially, let the buyer beware.
Why It Matters
Despite clear warning signs regarding its potentially volatile nature, DWAC stock is a hot commodity. Since the start of this year, shares of the blank-check firm gained about 150%. Over the trailing 52 weeks, the SPAC more than tripled in market value. That goes to show the power of Trump’s brand and persona.
On the date of publication, Josh Enomoto 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.
