As nearly everyone on earth knows, former President Donald Trump was indicted on charges related to an alleged payoff of Stormy Daniels. While this presents a pile of implications for the United States political climate, elections, and beyond, that’s not what we’re talking about today.
Today the question at hand is what the implications are for the merger between Trump’s company Trump Media & Technology Group (Truth Social) and Digital World Acquisition Corp (DWAC).
Timeline of the DWAC and Truth Social Merger
Trump was banned from Twitter and several other social media platforms in 2021 following the riots at the US Capitol. As a result, a huge demand for a conservative social platform arose leading to Trump starting Truth Social, which is essentially his version of Twitter.
Capitalizing on the SPAC boom, Trump’s company began the merger process with Digital World Acquisition Corp (DWAC) for $1.7 billion.
DWAC stock skyrocketed in response and has been on a whirlwind since the announcement, reaching a high of $175 per share and a post-merger low of $12.40:
Let’s go over a brief timeline of the merger:
- October 2021: Trump Media & Technology and Digital World Acquisition Corp (DWAC) agree to merge.
- December 2021: Both the SEC and FINRA open investigations into the merger
- February 2022: Truth Social launches
- June 2022: The SEC expands its investigation into the merger
- November 2022: Trump suggests he might run for President in 2024
- November 2022: Shareholders agree to an extension of the merger deadline to September 2023.
How Trump’s Indictment Can Halt the DWAC/Truth Social Merger
DWAC’s merger agreement takes pains to make it clear that seemingly whatever happens to Trump, the ownership of the company will not change. Specifically, the agreement has several provisions dictating that a material adverse event will not alter the company’s ownership structure.
The most important being that, according to DWAC’s merger agreement that the ownership structure of the company will not change if “the company principal is personally convicted of a felony criminal offense.”
So, if we take DWAC’s SEC filings at face value, then even New York convicts Trump of crimes, then the merger would be theoretically unaffected.
But worst-case legal documents can quickly change should the criminal probe not go in Trump’s favor.
Because the deal has faced a number of hiccups already, it wouldn’t be a surprise to see regulators ramp up their efforts as they sense their chances of winning in court go up given Trump’s focus on defending criminal charges.
However, Trump’s indictment might not matter a whole lot in the grand scheme of things. Traders have soured on the deal’s prospects, as the stock is down over 85% from highs.
How Traders Are Reacting to Trump’s Indictment
To the surprise of many, shares of Digital World Acquisition Corp (DWAC) actually soared when the indictment news hit the tape, rising 8% while other conservative-focused plays like Rumble (RUM) and Digital Ally (DGLY) rose in sympathy.
Perhaps traders are betting that the media firestorm around Trump’s indictment will create a surge in traffic on sites like Truth Social and Rumble.
Parker found his passion for markets through a high school investing contest. For the past 18 years, he has been analyzing companies and following markets closely.