Yes, that is the point of SPACs. In this case it was known that this particular SPAC was set up for the process of merging with Truth Social. Therefore it was subscribed to not by people who thought it would be profitable, but by people attracted to Trump.
From what I’ve read, the board can waive the six month limit, but the SEC looks askance at too much self-dealing. And who will buy it if Trump is selling?
It’s fake in the sense that it doesn’t by itself tell you anything meaningful about the company. A stock price of $1000 could be driven by two delusional traders trading a single share of a worthless stock that no one else would pay a cent for. Or there could be a huge number of people willing to buy at $999 or sell at $1001.
NFTs were an excellent example of the former situation. Of no value whatsoever outside a tiny community. And also an excellent tool for grift.
Maybe, but we’re seeing an advantage to IPOs now vs. SPACs. Maybe IPOs have useless and unreasonable hurdles to clear–but those hurdles can still be met by robust companies. Not-so-robust companies go the SPAC route. So we end up in the situation where SPACs look like scammers. No one will go for a SPAC when they could have IPOed because they won’t attract the same class of investors.
The Stock ticker for the company is DWAC and if you go to Nasdaq
You can see the price and the bars under the price are the trading volumes
There have been surges but prior to the big price uptick in January it was trading about 50-100k of shares a day with 30 million shares out in the wild. That has jumped to several million a day and today was 20million shares being transacted. Obviously those will be multiple transactions with the same set of shares being passed around .
The share valuation of DWAC is not just one or two shares going back and forth with some fixing of the price .
The deal for the spac to merge with trump media and technology group ( truth social) was announced two years ago and has been held up with regulatory issues. I’d imagine the share price fluctuations and people trading has all been related to the ebb and flow of those proceedings and an assumption it would be worth something.
If you click on institutional holdings you can also see who holds what from an institutional point of view, only 8% is owned by institutions ( google has 60%) so that’s indicator that people are not thinking this is a good use of investment money. There is no data on insider trades available.
There are 2-3 million shares in short interest, which is to say about 10% of the stock is being short sold, so that’s an indicator that people expect it to drop.
But regardless of how people are valuing the stock today when the merger happens the existing shareholders get shares in the newly named company and Trump gets a bunch of shares as well. They will all have value, but for trump to realize 3 billion in cash he has to find people who think the shares are worth 3 billion and pay him for it , and that will likely be difficult.
Sure, I was just using that as an example of an extreme case. The point is that you can’t just go from the stock price alone to figure out the real value. Including volume helps, though it could still largely be between a small community of investors. The level of institutional investment isn’t promising.
Thanks. A commentator yesterday (NYTimes business reporter) mentioned that yes, there are a few hundred thousand people who are small investors who have bought the stock. Many of these are not looking to get rich off it, but bought as part of their political convictions, and many are apparently willing to lose a few dollars (few thousand?) to “put their money where their mouth is…”. Also mentioned this was the most shorted stock on the market.
Taking the numbers I see in the news - $5.6B with $43/share - suggests there are about 130M shares existing. Trump supposedly owns 60%, which is 78M. (all numbers “give or take”) So if he tries to sell, say $500M worth, that would dump at least (at $43) another 11M shares on the market. And of course it would be business news, so the more the price drops on news of the sale, the more shares he would have to sell… Depends how saturated the buyer market is now. Harkening back to Gamestop, another factor is the desperation of short sellers to cover their bets. Anything could happen, which is why the stock market is described as a gamble.
SPAC’s aren’t new. They’ve been around for decades. They come in and out of favor depending upon market conditions. They are a poor investment, IMHO.
FWIW, the stock price was down below the initial price earlier today. (Ergo, anyone who bought at or above that price was technically in the red.) Their latest SEC filings has revenue for all of 2023 at $4.2M and loses at $58M.
If this was any ordinary stock it would be completely in the toilet. Ah, American culture.
A spac is basically a venture capital vehicle.
A VC fund runs around getting a bunch of money from institutions and rich people and then when reaching the fund target, invest it in one or many companies over the life of the fund, and cream off a bunch of management fees and force the companies bought by the Fund to pay over the top legal fees on exits and employ a random slew of their buddies as consultants paid for by the companies owned by the VC.
A spac gives people, via purchasing share of the Spac , an opportunity to get in the game on venture capital which that may not have access to by investing directly in a VC fund. The spac can be less opaque as it has SEC reporting requirements and it is much more liquid than being part of a VC fund so if you want to bail out before the spac term expires, you ca fairly easily.
When the spac term has expired or the target acquisitions have been made you get shares in the new entity and also avoid a bunch of costs with banks in the IPO process. There isn’t anything scummy or shady about a Spac, that is not to say that they can’t be used for scummy or shady purposes.
Like any venture investment, they are risky so you would definitely want to know the people running it and their competency and trustworthiness.
In this case I think the best thing to do is run away, run hard, run fast ,run far.
Regarding the price of the shares compared to the current earnings , it is not at all uncommon for companies valuations to be based on future potential, not today’s balance sheet so it’s not really an indictment of anything.
Some people clearly think shares are worth something. Only a few will lose and those are the ones who have been trading back and forth recently , the original investment I think was about 1 billion so for the original share holders and trump who gets a slew of shares , a total valuation over that is a win or at least not a loss.
Is there any evidence that Trump ever actually put up any cash? As I recall, he’s just the face and got his shares based on “value” to the company. So for him, any share price above $0.00 is technically a gain.
On the nasdaq link I posted up above somewhere for the original company DWAC you can go and see the press releases and the various SEC fillings which include details of the merger.
I recall one of the early press releases talks about the initial investment of about a billion , it doesn’t say who that money came from.
In one of the SEC filings the merger deal said DWAC shares would be converted to class A shares in the new company at some ratio of X share in DJT to DWAC shares. Donald trump would get given a bunch of class B shares( presumable as payment for Truth social) and others who hold DWAC stock would get common stock in some ratio. If the stock price maintained a certain price level for certain periods of time more would be issued to people . It’s a long long document and I am not an M&A expert and I didn’t spend the time to get into the details . The main difference in share class is about dividend payouts, voting rights and order of rights if ( when?) there is a bankruptcy.
Not quite. VC funds don’t normally invest in established companies that already have a go to market strategy. They are normally early stage investments, not valued off of profits but off of potential viability of their plan, which is heavily weighted towards R&D and development costs during the early stages.
SPAC’s are more like a publicly traded private equity fund. People can invest in them, and initially the value is normally equal to the amount of cash raised. You are essentially investing in the team to go out and purchase a company or group of companies that can create longer term value. Normally these are established companies with an established go to market strategy in place. They may just be privately held family owned companies, or owned by other PE companies making an exit.
With SPAC’s there is also a time limit (established by the SEC) that they have to invest their funds or the SPAC is dissolved and capital less the expenses of the SPAC, returned to the investors.
It is my understanding that going the SPAC route vs a regular IPO you can avoid a lot of public disclosure that an IPS would require. I.e., you would have to tell the “P” of the IPO basic business quants like how many active members and distinct visitors/month TS has. With a SPAC, that it up to the SPAC asking the acquired company for data, if they care to. The SPAC had already effectively done something like an IPO (okay, not really the same but still…) which would have been really simple.
Is this right or what?
I don’t know if it is right or not, but your understanding agrees with mine. It seems to be a device to avoid the public disclosure required for an IPO and I really cannot understand why it is permitted.
From what I’ve read it’s just another name for the “blank-check corporations” of the 80s that were basically just vehicles for fraud. There was some regulation of them introduced in the 90s but they’re still pretty shady. Like most scams, the creators and early investors tend to do well, and everyone else gets screwed.
The SPAC is a publicly traded entity. The first quarterly report after the SPAC acquires its target will need to include all of the public disclosures that any other publicly traded company about their business, which now includes the acquired target. A SPAC is not a route to avoid public disclosure.
You can see the result if you look for “nasdaq:djt”. It’s gone from a high of over $70 at first, three weeks ago, descending steadily to today’s close of $26.61. My Apple stock app indicates the after-hours number right now is $25.56 - so volatile is one description.
Well, then, what is the point of a SPAC?
I guess people who sold short are making out like bandits. Wonder how long it will take to become a penny stock.
I believe it was Abraham Lincoln, discussing the stock market, who said “You can fool all of the people some of the time…”