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Technology Stocks : Blank Check IPOs (SPACS)

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To: kidl who wrote (3673)12/6/2021 2:45:47 PM
From: Glenn Petersen   of 3799
 
Trump Social-Media SPAC Deal Being Investigated By SEC

Inquiry into merger to take former president’s social-media venture public comes after investors piled into the stock

By Amrith Ramkumar
Wall Street Journal
Updated Dec. 6, 2021 11:31 am ET

Regulators are investigating a deal between Donald Trump’s new social-media venture and a special-purpose acquisition company that would take the former president’s company public, according to a Monday securities filing.

The Securities and Exchange Commission is probing a potential merger between Trump Media & Technology Group and the SPAC Digital World Acquisition Corp. DWAC -2.52% , Digital World disclosed Monday. The SPAC is known by its stock ticker, DWAC.

The SPAC said in October that it is taking Mr. Trump’s social-media company public in a deal that valued it at roughly $875 million, including debt.

After the deal was announced, The Wall Street Journal and other media outlets reported that Mr. Trump met with Digital World Chief Executive Patrick Orlando early this year and before the SPAC had raised money. If the meeting is deemed to have represented substantive deal talks, it could violate SEC rules. That is because SPACs aren’t supposed to have a target company identified at the time they initially raise money, analysts say.

The SEC sought information from Digital World in November about its trading policies and communications between the SPAC and Mr. Trump’s company, according to the filing. The SEC also asked for banking records and the identities of some investors, the filing said. It couldn’t be determined whether the SEC is specifically seeking information regarding Mr. Orlando’s meeting with Mr. Trump.

SEC investigations typically focus on whether public companies made accurate disclosures to investors and take months or years to complete. Its civil probes don’t necessarily result in formal allegations of wrongdoing.



Little is known about Trump Media & Technology group’s new social-media platform, Truth Social. PHOTO: JAKUB PORZYCKI/ZUMA PRESS
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SPAC and Trump Media & Technology Group representatives didn’t immediately respond to requests for comment.

Shares of the SPAC fell about 3% to $43.65 Monday. They have still roughly quadrupled since the deal was announced, though they are well below an October intraday peak of $175 after individual investors piled into the stock.

In another sign of investor enthusiasm for the SPAC deal, Digital World said over the weekend that it is raising $1 billion from investors in a private investment in public equity, or PIPE, associated with the merger. That money and some or all of the roughly $287.5 million held by the SPAC could be used to grow Trump Media & Technology Group, though SPAC investors can pull money out before the deal closes.

The PIPE investment and current Digital World SPAC price would value Trump Media & Technology Group at several billion dollars.

Mr. Trump has said the new company aims to combat the dominance of mainstream social-media platforms such as Twitter Inc. and Meta Platforms Inc.’s Facebook. He was banned from such outlets following the January assault on the U.S. Capitol.

Also called a blank-check company, a SPAC is a shell that raises money and trades on a stock exchange with the sole purpose of merging with a private company to take it public.

The Digital World SPAC raised money in early September, then announced its deal in late October, one of the fastest such announcement timelines among the hundreds of blank-check mergers tracked by SPAC Research.

After regulators review the private company’s financial information and the deal is completed, the private company replaces the SPAC in the stock market.

In the coming months, Trump Media & Technology Group would have to disclose its ownership structure and business information before the deal closes. Little is known about the new company and its social-media platform Truth Social.

The $1 billion in PIPE commitments still put the company among a select group of companies that choose to go public through SPACs. Only a few well-established companies, including Southeast Asian app operator Grab Holdings Ltd., electric-vehicle maker Lucid Group Inc., and personal-finance app operator SoFi Technologies Inc. have raised at least that amount.

The SEC has ramped up scrutiny of SPAC deals in recent months amid concerns that such mergers disproportionately benefit insiders through unique incentives at the expense of other investors.

Such mergers have exploded as alternatives to traditional initial public offerings in the past year, in part because they allow companies going public to make business projections that aren’t allowed in IPOs.

—Dave Michaels contributed to this article.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

Trump Social-Media SPAC Deal Being Investigated By SEC - WSJ
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