In case you’ve been living under a rock for the past week, you’ll have probably heard something about Digital World Acquisition Corp (NASDAQ:DWAC). The company is a SPAC, a popular form of legal vehicle over the past year or so for some investors. The difference with this SPAC is that it involves a certain Donald Trump. With a focus around a new wave of social media networks, is this DWAC/Trump collaboration something I should be getting involved in?

The story so far

Let’s put the pieces of the puzzle together. First let’s consider the structure of DWAC. It listed last month as a SPAC. These special purpose acquisition companies are essentially a blank cheque entity. This means that at the point of listing, they don’t actually own any tangible businesses. Sure, they might hold cash on the balance sheet, but the value comes from the businesses that the SPAC could merge with in the future.

Using funds raised from the public offering, the SPAC will then go and merge with suitable companies and go from there. In the case of DWAC, it announced last week that it’ll be shortly merging with Trump Media and Technology Group (TMTG). This is where things get interesting.

TMTG was formed earlier this year, but has flown under the radar. Yet it comes as no surprise that Trump is looking to push and make a new social media platform. After all, he is banned from several of the major established tech platforms. After being vocal about the lack of free speech/freedom of expression on places like Twitter and Facebook, he plans to launch Truth Social network.

The operations of this business fall under TMTG, which thanks to the tie up with DWAC, will come under the SPAC. Ultimately this means that regular retail investors like you and I will be able to invest and get a piece of the action.

Price movement and our take

Since launch, DWAC shares traded fairly calmly around the launch price. However, confirmation last Wednesday about the merger with TMTG saw the price start to skyrocket from $10. With various chat room sites also getting involved in the action, word spread quickly. Trading during Friday had to be halted 12 times due to the volatility and triggering up levels. In fact, DWAC shares traded up to $160 on Friday during the day before closing lower.

Clearly, from $10, the price has surged higher. However, since the initial rise the market has tempered expectations, with it closing around $84 yesterday. A few short sellers have emerged from the carnage. 

From our point of view, it’s very hard to pin a fair value on the SPAC at the moment. We don’t know enough information about Trump’s plans with the social media angle. We also don’t know anything about the finances. Really, at the moment it’s purely a speculative play. There’s nothing wrong with this, but we’d be trading this based on intraday momentum rather than any meaningful fundamentals. This therefore makes it a high risk play.

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