Markets may be crashing, but not every stocks is getting smashed into the close and one notable outlier is blank check firm Digital World Acquisition Corp (ticker DWAC) better known as Donald Trump's new social media venture, which according to a late day report from Reuters is seeking to raise up to $1 billion in a PIPE deal by selling shares to hedge funds and family offices at several times the valuation it commanded in a deal with a blank-check acquisition firm in October.
While the original deal from September valued Trump Media at $875 million, including debt, just two months later the company is seeking to raise up to an additional $1 billion at a valuation of close to $3 billion, to reflect Digital World's share rally after Trump supporters and day traders snapped up the stock. Indicatively, DWAC's market cap closed at $1.8 billion today.
The proposed deal is the clearest indication yet that the dealmakers behind Trump Media & Technology Group - which has yet to roll out the social media app it says it is developing - are seeking to capitalize on the market euphoria around their venture, which has so far been fueled by its ambitious goals rather than a business that is up and running.
As a reminder, Digital World shares were originally valued at $10 each in the deal with Trump Media back on Sept 26. However, just weeks later, Trump Media is looking to secure a private investment in public equity (PIPE) that values DWAC shares closer to their recent price, currently hovering around $40, the sources said. It is a departure from most PIPE deals, which are typically done at $10 per share, and would result in a much greater dilution of existing Digital World investors.
Reuters sources added that Digital World shares may be valued based on a 20% discount of their 10-day, volume-weighted average price.
A few caveats: while most PIPE transactions are inked before a deal to take a company public is rolled out, it is far from certain that the companies will raise the entire $1 billion they are seeking following their deal announcement. Many Wall Street firms have snubbed the opportunity to invest, and many of the investors participating in the confidential road shows for the PIPE are hedge funds, family offices and high net-worth individuals, the sources said. Some may have decided that this is the most efficient way to buy favor with the person who according to online betting services will be the next US president.
Trump has also been personally involved. He has been calling some investors to ask them to make a commitment to the PIPE of more than $100 million, the second of the sources said. Investors attending the road show were shown a demo from the planned social media app, called TRUTH Social, which looked like a Twitter feed, the sources said.
That said, the deal also faces regulatory risk. U.S. Senator Elizabeth Warren asked Securities and Exchange Commission Chairman Gary Gensler last month to investigate the planned merger for potential violations of securities laws around disclosure. The SEC has declined to comment on whether it plans any action.
Trump Media & Technology Group and Digital World have asked investors to finalize commitments to the PIPE by the middle of December, the sources said.
In a PIPE road show attended by one of the sources, investors were asked to commit between $10 million and $20 million. Neither Trump nor Digital World executives made an appearance, and the investor presentation was led by David Boral, the president of EF Hutton, an investment bank that advised Digital World on the deal, the source said. A Trump Media & Technology Group representative was also in attendance, the source added.
TRUTH Social is scheduled for a full rollout in the first quarter of 2022, and is the first of three stages in the Trump Media & Technology Group's plans, followed by a subscription video-on-demand service called TMTG+ that will feature entertainment, news and podcasts, according to the news release.
In a slide deck on its website, the company envisions eventually competing against Amazon.com's AWS cloud service and Google Cloud.