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‘This is strange and murky.’ Trump SPAC deal to value company at over $10 billion despite red flags


Despite these red signs, TMTG is creating a big buzz among at least some investors and has achieved an implied valuation of over $10 billion, according to Renaissance Capital.

“This is weird and murky,” Matthew Tuttle, CEO of Tuttle Capital Management LLC, told CNN. “I’ve never seen anything like this before. And I’ll probably never see it again.”

TMTG, chaired by its former chairman, has also simultaneously disclosed a merger agreement with Digital World Acquisition Corp., a type of shell company known as SPAC, or Acquisition Company. Special Purpose. SPAC raised money must be used to get and put public-private companies. They are basically blank check companies that exist just to find the right merger partner.
SPACs have become very popular on Wall Street, in part because they can save time and money compared to traditional initial public offerings. Celebrities include Alex Rodriguez, Larry Kudlow and Shaquille O’Neal participated in SPAC, making regulators to warn investors Don’t invest in SPAC just because a celebrity is involved.

Implied valuation over $11 billion

The Trump SPAC immediately caused a frenzy on Wall Street – even if little is known about the new entity. Sharing of the Digital World spiked up to 1.657 % in the days after the deal was announced before withdrawing.

“This is now the meme stock of all the meme stocks,” said Tuttle, whose company issues ETFs, including several SPAC market-focused funds. “Take all the rumors about AMC and GameStop in January and February and multiply it by a million and that’s it.”

Based on Digital World’s Monday closing price of $50.49, the SPAC deal implies a valuation of TMTG at around $10.5 billion, according to Renaissance Capital, an ETF provider focused on IPO and pre-IPO research. That implied valuation includes warrants, private placement, and a deal to raise $1 billion following the completion of the SPAC merger.

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Tuttle, who said his company briefly owned shares in Digital World before they skyrocketed, called the valuation “a bit scary” and “ridiculous.”

“Take this as a gamble, because it definitely is,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital. “It seems like much of the valuation is based on the hype and popularity of Donald Trump. That’s not a good reason to invest.”

‘It doesn’t really make sense’

One of the many unusual aspects of the Trump SPAC is that the parties initially released very little specific information about the fundamentals of the business.

New documents were released last week, but they raise more questions than they answer.

The 38-slide presentation submitted by TMTG includes a page titled “Infrastructure” that identifies a user as “a person or organization or system with one or more roles that initiate or interact with activities .” It goes on to say that includes a “traveling sales representative to visit customers.”

That definition is hard to reconcile with the fact that TMTG is supposed to be a conservative media company, not a platform catering to traveling salespeople.

“It doesn’t really make sense,” Kennedy said. “A better example of a user would be ‘a resident of the United States with internet access’ or ‘one of the 89 million followers of Trump’s old Twitter account.”

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Judd Legum, political newsletter writer Popular Information, flagged the definition of “user” in Twitter thread last weekend. Legum points out that language on infrastructure slide just “cut and paste from other sites.”
Indeed, the database server slide’s description matches what was written on a page last updated in 2016 on Techopedia, a website that includes a dictionary of tech jargon. The definition of a load balancer matches what’s listed on a page on ‘s website Citrix.
Likewise, the definition of customer matches what is found on ‘s website Cloudflare.

“In other words, this company not only doesn’t have any technical infrastructure,” Legum writes, “it can’t even bother writing its own slide about what the infrastructure will look like.” .”

TMTG did not respond to a request for comment.

‘Serious Errors’

But these weren’t the only quirks in the investor presentation.

Kennedy, strategist at Renaissance Capital, notes that slide 5 shows PIPE (private investment in public equity) potentially convertible to 13.7 million shares, although other filings show a level the minimum is actually 29.8 million. Another line in the same slide appears to have a different error about the number of shares TMTG shareholders hold, Kennedy said.

Another unusual element of the presentation was that slide 21 in the deck only listed the first and last names of members of TMTG’s technology team.

“I believe they are moving very quickly to capitalize on the current stock price, so that could explain some of the flaws, inconsistencies and other anomalies,” Kennedy said.

TMTG is not the only company in the SPAC agreement with typos and errors in its filing. Kennedy said last year he noticed many of these issues creeping into investor presentations.

“This is a bit more. It’s an error related to pricing and very basic components of the deal. These are more serious errors than we usually see,” he said.

Expected revenue of just $1 million next year

The slide lists a range of financial projections, including that Truth Social could hit 81 million users by 2026 and generate $13.50 in average revenue per user. The presentation says that TMTG+, the planned streaming app, is expected to total 40 million subscribers by 2025 and generate $9 in average monthly fees per user.

“TMTG aspires to create a media powerhouse to compete with the free media conglomerate and against the ‘Big Tech’ companies of Silicon Valley who have used their unilateral power to silence them. mouth of dissenting voices in America,” TMTG said in the presentation.

The company says TMTG+ can offer a price close to that of Netflix “on President Trump’s much-loved facility.”

However, the presentation also acknowledged that the current business is not much.

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A slide showing management projects that will generate only $1 million in revenue over the next year, based on Truth Social alone.

“This is extremely high risk,” said Jonathan Macey, a professor at Yale Law School. “But it seems like a lot of people believe that something can be made of this because the value is really skyrocketing.”

TMTG recently announced a deal to raise $1 billion upon completion of the SPAC deal.

However, the company did not disclose who the $1 billion committed investors are, other than to say that it is a “diversified group” of institutional investors.

Kennedy of Renaissance said the terms of the $1 billion investment were “unusually favorable” for investors, granting them preferred stock that converts into common stock at a steep discount.

SEC and FINRA are investigating

Trump SPAC is also subject to regulatory scrutiny.

Last week, Digital World said in a submit it received a document and information request from the Securities and Exchange Commission in early November. Among other categories, Digital World said the SEC’s request was to seek related documents and information. between Digital World and Trump Media and Technology Corporation.

Digital World also said that Wall Street’s self-regulatory body, the Financial Industry Regulatory Authority, or FINRA, is reviewing the transaction before announcing the deal.

At the end of October, New York Times reported that Trump began discussing a merger with Digital World long before the company’s blank check was made public and before such negotiations were disclosed to investors.
That motivated Senator Elizabeth Warren Calls for SEC Investigation Is there any law broken by Digital World because the company has repeatedly told shareholders that it has not held substantive negotiations with a target company.

Devin Nunes is the new CEO

Trump’s own role in the SPAC deal is unclear. The filings do not explicitly indicate the former chairman’s role, other than describing him as the chairman of TMTG. Trump did not respond to a request for comment.

TMTG reached an agreement to issue shares to the public in October, although it does not have a CEO. That vacancy was filled by Nunes, the California Republican who recently announced he would be leaving the House of Representatives to join the social media company Trump.

However Nunes, a former dairy farmer, doesn’t seem to have any business experience in social media or tech. His Website of the National Assembly said he has a bachelor’s degree in agribusiness and a master’s degree in agriculture. Nunes did not respond to a request for comment.

The fact that TMTG will not be run by an executive with a proven track record in technology or social media further enhances the risky nature of the venture. Countless startups with more experienced executives have tried and failed to disrupt this market.

“It’s very difficult to build a social media company. Even after Twitter generates hundreds of millions of users, there are doubts about the company,” Kennedy said. “You can throw money at these projects, but it’s very difficult to build a sticky foundation.”

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