As Kanye West Buys Parler, the Fate of Trump-linked SPAC Digital World (DWAC) Hangs by the Thread

Rohail Saleem
Digital World

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

The fate of Digital World Acquisition Corp. (NASDAQ:DWAC) is precarious at the moment, with the SPAC besieged by an onslaught of federal investigations that have placed the media-related ambitions of former US President Trump in a deleterious limbo. Amid this intrinsic uncertainty, the broader conservative media landscape is undergoing rapid consolidation, as marked by today's announcement by Kanye West to buy Parler as well as reports over the weekend that Rupert Murdoch is again considering the merger of Fox and News Corp.

As a refresher, the SPAC Digital World is slated to take TMTG public via a reverse merger, furnishing the former US president's media-focused entity with much-needed cash, including $293 million in cash proceeds from the SPAC's IPO and as well as PIPE investments of $861.5 million. TMTG intends to use these cash resources to build a conservative-oriented media machine, which includes plans to bolster Trump's newly-launched social media platform, dubbed Truth Social, as well as launch a subscription-based, "non-woke" video-on-demand service and initiate cloud-based offerings under the "tech stack" suite of products.

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However, the merger between Digital World and TMTG has been complicated by a flood of federal investigations, including an ongoing investigation by the SEC and FINRA on allegations that the SPAC's management violated securities law by holding private discussions about a merger with TMTG as early as May 2021 but failing to disclose this pertinent information in its public filings. The SEC is also looking into reports that Rocket One Capital might have been privy to the impending merger between TMTG and DWAC before the public announcement. These developments then forced DWAC and TMTG to try to secure an extension – via shareholder approval – to the contractually mandated timeframe by which this deal has to be consummated.

However, Digital World could not secure shareholder approval for the merger deadline extension proposal despite multiple attempts in September and October. Given the stock's high turnover rate, many shareholders who owned DWAC shares on the date of record no longer held their stake when the time came to vote. The management's general lackadaisical attitude further compounded this problem and increased the quantum of uncertainty. Eventually, DWAC sponsors paid $2.875 million to enforce a clause in the merger agreement that allows for a 3-month extension in the merger consummation deadline without seeking shareholder approval. This clause can be exercised twice, with sponsors paying the $2.875 million fee each time. The SPAC will now again attempt to garner the approval of its shareholders on the 03rd of November.

As the most high-profile casualty of this boondoggle, certain PIPE investors notified Digital World on the 23rd of September that they were withdrawing their investments totaling $138.5 million. Without these withdrawals, DWAC would have availed nearly $1 billion in PIPE investments.

This brings us to the topic at hand. Patrick Francis Orlando, the Chairman/CEO of Digital World, has been unable to secure the merger between his other SPAC, Benessere Capital Acquisition Corp. (BENE), and eCombustible Energy. Given DWAC's ongoing troubles, this development does not bode well for the prospects of an eventual merger between Digital World and TMTG.

Moreover, with Elon Musk expected to unban Trump on Twitter once his takeover deal goes through, coupled with an accelerating consolidation trend across the conservative media landscape, TMTG is currently struggling to justify its raison d'être, which does not bode well for Digital World's prospects. Additionally, with Kanye West now buying the conservative-oriented "uncancelable" social media app, Parler, Trump's Truth Social app is now facing increased competition from offerings that are not beholden to the former US President's perceived toxic persona. When taken together, the chances for a viable merger between DWAC and TMTG continue to diminish by the hour.

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