How Trump is using a PSPC to fund a new social media business
After decades of bankruptcies, defaults, trade disputes and business failures – not to mention a polarizing presidency that ended with a violent mob storming Capitol Hill – Donald J. Trump has been shunned by much of American business.
Today, thanks to one of Wall Street’s hottest fads, the former president has managed to sidestep that tarnished reputation and access hundreds of millions of dollars to start a social media company.
To his rescue: PSPCs.
Ad hoc acquisition companies are the reverse of initial public offerings. Sometimes called blank check companies, SPACs first go public and raise funds from investors in an effort to find a private company to merge with. These investors have no idea what this merger partner will be like.
Which led some of the prominent investors in a SPAC called Digital World Acquisition – including hedge funds DE Shaw and Saba Capital – to surprisingly realize that they are financially supporting Mr. Trump’s latest venture.
Mr. Trump’s new company, Trump Media and Technology Group – incorporated in Delaware in February with little fanfare, and with no revenues or a tested business plan – on Wednesday struck a deal to merge with Digital World.
Digital World, which was created shortly after Mr. Trump was defeated in the 2020 election, raised nearly $ 300 million last month, much of it from big investors. Assuming the merger is complete, that money will soon fund media company Trump, which plans to offer a Twitter-like social media app early next year.
Shares of the newly merged company soared on Thursday, rising more than 300% to close at $ 45.50 a share and in part reflecting expectations that the former president’s media company could be very profitable.
SPACs have long had a dubious reputation because they give struggling or untested companies that would otherwise not find a path to public procurement from donors. But in recent years, these lightly regulated entities have become all the rage, as with interest rates still low, investors are hungry for new places to put their money to work. In the past two years alone, these companies have raised $ 190 billion from investors.
But even by foamy Wall Street standards, the speed with which Digital World struck a deal with Mr. Trump – which many in the former president’s inner circle were unaware of – was remarkable.
Most blank check companies take around 17 months to find a target and close a deal after they go public. Digital World gave itself a year, but found its target a month after its IPO.
“These are extraordinary times,” said Usha Rodrigues, who teaches corporate law at the University of Georgia Law School and has written on SPAC. “It’s well outside the norm.”
The founder and CEO of Digital World is Patrick Orlando, who previously worked for Deutsche Bank and other Wall Street companies. More recently, Mr. Orlando, who is based in Miami and knew Mr. Trump before the deal, according to one of Mr. Orlando’s colleagues, started three other blank check companies. Although they have raised funds from investors, none have reached a deal. A proposed merger of one of the PSPCs, Yunhong International, with Giga Energy recently collapsed.
When Digital World went public on the Nasdaq Stock Exchange last month, it didn’t have the help of a branded investment bank. Instead, he turned to a small company which until recently was called Kingswood Capital Markets.
This summer, Kingswood changed his name to EF Hutton, adopting one of Wall Street’s most famous brands, presumably in an effort to improve its marketing cachet. (The original EF Hutton was famous for the publicity slogan “When EF Hutton speaks, people are listening. Joseph Rallo, CEO of EF Hutton, did not respond to requests for comment.
With the help of the bankers of the new EF Hutton, Mr. Orlando and Digital World lined up 11 hedge funds and other institutional investors to serve as anchor investors. They agreed to buy substantial shares of Digital World’s takeover bid on September 8.
As is the norm in “blank check” transactions, investors in some cases have shelled out as much as $ 30 million without much guidance on how Digital World would spend their money, officials said. several of the hedge funds. All they knew was what Digital World said in its securities filing – that it was looking to invest in “emerging growth companies focused on mid-market technologies.” He gave no indication that he hoped to merge with a social media company or work with the former president.
Vik Mittal, chief investment officer at Meteora Capital, a major investor, said the company was unaware of an impending deal with Mr. Trump’s media company when it pledged the money in Mr. Orlando’s SPAC.
Mr. Orlando negotiated the deal with Mr. Trump, with whom he had a relationship. “I’m the CEO of PSPC, and the conversations were generally at the highest level,” Orlando said in a brief interview Thursday. He declined to comment on the details of the deal or how it was crafted. “Everyone worked really hard, 24 hours a day,” he said.
Mr. Trump, for his part, has kept much of his entourage in the dark. His plans had not been discussed in weekly appeals from his political team, according to participants.
Trump Media and Technology Group, whose website lists Mr. Trump’s private club Mar-a-Lago as a mailing address, has big ambitions. A slideshow on the company’s website imagines it competing not only with Twitter and Facebook, but also with companies like Netflix, Disney and CNN. In the “long-term opportunity” category, the company lists Google and Amazon as potential rivals.
Mr. Trump’s yet to launch app is called Truth Social. Hours after its announcement, hackers claimed to have created fake accounts on a never-before-seen test version on behalf of Mr. Trump and others.
Some Republican groups immediately sought to use the social media site’s ad for fundraising purposes. The Republican National Committee, for example, sent a “BREAKING NEWS” email Thursday asking supporters if they wanted to join the site.
Hedge funds that have invested in Digital World appear to have benefited at least on paper, given the stock’s steep rise on Thursday.
One of Digital World’s main investors was Saba Capital, a $ 3.5 billion hedge fund led by Boaz Weinstein. Mr Weinstein said Thursday that after learning about the deal with Trump, his company sold much of its stake in Digital World early in the morning, making a small profit before the shares skyrocketed. Mr Weinstein’s wife, Tali Farhadian Weinstein, recently unsuccessfully ran for the Manhattan District Attorney as a Democrat.
“Many investors are grappling with difficult questions about how to incorporate their values into their work,” Weinstein said in a statement. “For us, it was not a close call.”
Lauren Hirsch, Jeremy W. Peters, Nicole perlroth and Andrew Ross Sorkin contributed reports.