Trump's new social media deal sparks 400% surge in SPAC's shares

Former US President Donald Trump speaks during a rally at the Iowa States Fairgrounds in Des Moines, Iowa, US on Oct 9, 2021.
PHOTO: Reuters file

LOS ANGELES - Former US president Donald Trump’s plan to create a social media app after Twitter and Facebook barred him won an endorsement from investors on Thursday (Oct 21) who sent shares in a shell company backing the effort soaring.

Trump Media and Technology Group and Digital World Acquisition Corp, a Special Purpose Acquisition Vehicle (SPAC), announced on Wednesday they would merge to create a new social media app called Truth Social.

Trump’s company said it plans a beta launch — unveiling a trial version — next month and a full roll-out in the first quarter of 2022.

SPACs such as Digital World use money raised through an initial public offering to take a private company public.

The deal announcement lacked the trappings of the detailed business plans Wall Street is accustomed to in SPAC mergers, from naming a leadership team to giving detailed financing earnings and projections.

Even so, shares of Miami-based Digital World were up 340 per cent at US$44.20 (S$59.20) a share in afternoon trading on Nasdaq after rising more than 400 per cent earlier in the session.

At that price, its market capitalisation stood at US$1.4 billion, up from US$321 million on Wednesday.

It was the most actively traded stock on the exchange, with more than 411 million shares changing hands and drawing chatter on forums such as Reddit, where retail investors have driven so-called meme stocks to values not supported by mainstream financial analysis.

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On Twitter and Stocktwits, some users cheered the rally with posts displaying rocket ships and GIFs of Trump.

Some investors said the market reaction reflected support for Trump as well as a bet that a platform with him would draw followers.

“Up to this point there hasn’t been a publicly traded vehicle for those that support the former president,” said Jake Dollarhide, co-founder of Longbow Asset Management in Tulsa, Oklahoma.

Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, said not just Trump supporters but also opponents, media and investors would want to get on the platform to keep track of what Trump says.

“Investors are betting that’s going to drive a lot of people to the platform,” O’Rourke said.

People close to the Republican former president, speaking on condition of anonymity, have said Trump has sought to set up his own social media company since leaving the White House.

Trump, contemplating another White House run in 2024, has been frustrated that he does not have a direct and unfiltered connection with his millions of followers after Twitter and Facebook barred him, these people said.

Social media giants suspended Trump’s accounts after his supporters rioted at the US Capitol on Jan 6 following an incendiary speech he gave repeating false claims that the 2020 election had been stolen from him through widespread voting fraud.

Twitter found that Trump posts violated its “glorification of violence” policy. Facebook found that Trump praised violence in connection with the deadly attack in which rioters sought to block the formal congressional certification of his election loss to President Joe Biden.

In a press release announcing the deal on Wednesday, Trump said, “I’m excited to soon begin sharing my thoughts on Truth Social and to fight back against Big Tech.”

Shares of Facebook were down 0.1 per cent, Twitter shares were down 1.4 per cent.

Uncertain future

Trump Media said it would receive US$293 million in cash that Digital World Acquisition had in a trust if no shareholder of the acquisition firm chooses to cash in their shares.

The soaring share price on Thursday could increase the likelihood of a deal closing. Investors in the SPAC must eventually choose whether to redeem their shares at the IPO price of US$10 per share, which is now much lower than the level at which what many would have bought.

Still, its future is far from certain. Digital World Acquisition, led by former investment banker Patrick Orlando, has launched at least four SPACs and plans to launch two more but none of them have completed a deal yet.

Orlando did not immediately respond to requests for comment.

Attempts to float alternatives to Twitter and Facebook have faltered in the past. Parler, a social media app backed by prominent Republican Party donor Rebekah Mercer and popular with US conservatives, for example, had several tech companies cut ties with it in the wake of the Jan 6 riot.

“Will the big cloud computing companies allow access to the app or the site and how far can he take it?” asked Phil Blancato, chief executive of Ladenburg Thalmann Asset Management, referring to Trump.

Gettr, a Twitter-style platform started by former Trump adviser Jason Miller, claimed more than 1.5 million users in its first 11 days after being launched in July.

Despite endorsements from other Trump allies, including Steve Bannon, Miller was unable to get Trump to join the platform.

READ MORE: Trump says he is suing Facebook, Twitter and Google, claiming bias

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