Trump-Tied SPAC Has Wild Ride Triggered by Midterm Elections

The blank-check company trying to merge with Donald Trump’s nascent social-media business is more than ever a bet on the former president’s political prospects.

The shares of Digital World Acquisition Corp. soared 66% Monday, after Trump, campaigning for candidates he endorsed in the midterm elections, teased a possible announcement next week that he’s running for the White House again. The stock tumbled 20% Wednesday after those politicians fared worse than expected, prompting some pundits to say the Republican Party was moving on from Trump.

Shares will be in focus again after Trump lashed out at Florida governor and chief Republican rival Ron DeSantis on Thursday.

The volatility shows how closely tied Digital World is to Trump’s perceived political power, with all the risks that come with that. The special purpose acquisition company is one of the few remaining pockets of speculative fervor among individual investors after share prices plunged over the past year, largely bringing an end to the meme-stock era.

“DWAC’s performance has been intrinsically tied to Trump and the prospect of him running — and being successful — in 2024,” said Craig Erlam, senior market analyst at Oanda. Despite the setback for Trump in the midterms, interest in the stock could remain as “the expectation will be that people will flock to the platform in order to hear what he has to say.”

Digital World went public in September 2021 at the tail end of a frenzy for blank-check companies. SPACs have a limited time to merge with a takeover target or they must return to investors the traditionally $10-a-share initial public offering price, plus interest. Even as risks mount to the planned deal with Trump’s media company, Digital World trades at a 123% premium to its cash value amid a flurry of buying from retail traders and Wall Street pros. It remains the best-performing SPAC on the market.

Buyers of the stock are ignoring a potential reckoning if the deal doesn’t get completed. The SPAC’s sponsors have failed to corral its retail trader base to vote on an extension to the deadline. Both the U.S. Securities and Exchange Commission and Justice Department have launched probes that the companies have warned could derail the tie-up.

And while Twitter Inc. is in turmoil of its own, another risk for Trump Media and its social media platform, Truth Social, is Elon Musk signaling that he would welcome the former president back to Twitter after he was banned in January last year.

“The plethora of investigations into DWAC by several federal agencies and the apathy of its shareholders” makes it likely that the deal will fall apart, said Accelerate Financial Technologies Inc. CEO Julian Klymochko. Such a failure will leave investors with a roughly $10.40 payout, Klymochko believes, more than 50% below where the stock closed on Thursday.

Digital World didn’t immediately respond to a request for comment outside of U.S. business hours.

The reawakened trade garnered attention from retail traders who plowed $11 million into the SPAC over the past week, data from Vanda Research show, the most since earlier this year. Still, that accounted for less than 0.2% of total retail buying over that stretch, the data show.

Tech Stat of the Day

The Nasdaq 100 Index surged 7.5% Thursday after data showed inflation cooled more than forecast in October, suggesting that one of the biggest headwinds facing the technology sector — aggressive rate hikes — may ease. The tech heavy index has not rallied as much following an inflation data announcement in at least 20 years. The index is still down 29% this year, with about $5.7 trillion wiped off in market value.

Bailey Lipschultz reports for Bloomberg News.

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