Donald Trump's good fortune may be summed up in four letters: DWAC. The Digital World Acquisition Corp could become the astonishing financial lifeline of the former American president, who complains that no one wants to lend him the 454 million dollars that he must pay in fines before Monday March 24 to settle the damages to which he was ordered in two court cases. At stake: a potential gain of around $3.5 billion for Donald Trump.
DWAC, a strange financial vehicle listed on the stock exchange since April 2021, is about to merge with Truth Social, the social network founded by the ex-president after his ouster from Twitter in January 2021, explains the Wall Street Journal, in an article published Tuesday March 20. An operation which must still be validated this week by the shareholders of the Digital World Acquisition Corp, who "are all convinced 'Trumpists'", underlines the North American economic daily.
Consequence: Donald Trump, who owns around 60% of Truth Social, could find himself richer by 3.6 billion dollars, "perhaps even as early as Monday", notes the Wall Street Journal.
DWAC is a Spac
It may be difficult to imagine that Truth Social, which, since its birth in 2021, has only lost money and struggled to attract users other than the most die-hard Trumpists, could turn into a jackpot for Donald Trump . This sleight of hand is explained by four other letters: Spac.
DWAC is indeed a Spac. “Special purpose acquisition companies are listed companies that are empty shells looking for private companies [like start-ups, Editor’s note] to acquire,” explains James Bowden, finance specialist at the University of Strathclyde (Scotland).
Also read Spacs, these obscure objects of stock market desire
In their heyday, at the beginning of the 2020s, Spacs represented a gateway to the financial markets very popular with companies that did not want to undergo the long traditional IPO process. In fact, the Spac, already listed on the stock exchange, disappears in favor of the acquired company once the marriage is consummated.
In the case of Truth Social, the DWAC share would be deleted from the New York Stock Exchange and replaced by DJT (the initials of Donald J. Tump), the stock market acronym chosen by the ex-president to designate the parent company of Truth Social, called Trump Media & Technology Group.
In other words, to know what benefit Donald Trump can derive from his social network, "it is not the value of Truth Social that counts, but that of DWAC", underlines James Bowden. Since January 2024, the action of this Spac has gone from 20 dollars per share to more than 45 dollars, allowing Digital World Acquisition Corp to weigh around 6 billion dollars on the stock market, which would provide Donald Trump with the famous 3.5 billions of dollars.
Speculation for political purposes?
This sudden surge in DWAC stock may come as a surprise. Usually these financial vehicles gain in value when their acquisition target is known. Here, the proposed merger with Truth Social is not new: it was unveiled in September 2021. This stock market marriage has, moreover, been marked by a series of delays and setbacks, including an investigation for crimes of initiated.
“One of the possible reasons for this stock market surge is the occurrence of a new and positive element for the merger between the two entities at this period,” explains James Bowden. This is what happened with the green light from the SEC (Security Exchange Commission, the American stock market watchdog) in February. Investors who sincerely believe in the prospects of another very right-wing social network have decided that it is time to bet on DWAC.
Another scenario was mentioned by the Wall Street Journal: hordes of small pro-Trump investors who invest in Spac in order to inflate its value so that it brings a small fortune to their champion on the wedding day. It would then be a sort of dowry which is reminiscent of the Gamestop affair of 2021. "At the time, small investors had chosen to bet on this company, whose value had increased by 19,000% in one year ", recalls Antoine Andreani, senior market analyst for XTB, a stock broker.
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But for him, there is no point in invoking an army of small carriers to explain this dizzying increase. “There are no significant volumes of transactions, so it would only take a few billionaires in line with Donald Trump and his social network project, who decided to invest at that time to cause this increase in a few days,” specifies Antoine Andréani.
In any case, around an IPO, there is always a "honeymoon" period during which speculation allows the share value to rise. But only the strongest companies resist in the long term. ", notes the analyst.
Six months to wait?
Donald Trump does not, in theory, need the long term. He may want to take advantage of this “honeymoon” to sell his shares in order to quickly obtain the money he needs to pay off his debts and finance his presidential campaign against Joe Biden.
Except that… The agreement between Truth Social and DWAC provides that Donald Trump retains his shares for at least six months after the listing of Truth Social. “It’s a classic clause to ensure a certain stability around the shareholding of a new listed company,” explains James Bowden.
All that for this ? Will Donald Trump have to wait until September to cash in, just two months before the American presidential election? Especially since by then, “the value of the Truth Social share may have fallen”, notes Antoine Andréani.
In any case, it would be too late to be used to pay his fines. But there is another clause in the "marriage" contract that Donald Trump can use, points out the Wall Street Journal: he could use his shares in Truth Social as collateral security to obtain a loan. That is to say, financiers would lend him money and be repaid in shares six months later, if Donald Trump has no other means of paying. We still need to find investors willing to take this risk.
However, selling your shares at the first opportunity "is not a very good business decision", underlines James Bowden. Indeed, this would be interpreted by the markets as a sign that Truth Social's main shareholder does not believe in its social network, or is only using it as a cash cow. “The consequence would be a probable collapse in the stock market value of Truth Social,” said James Bowden.
“If he does so, he sacrifices his electorate. Indeed, those who have invested in this social network – and who would be the first victims of the collapse of Truth Social’s price – are probably also those who vote for him,” concludes Antoine Andréani. Donald Trump could therefore be forced to choose between money and his supporters.
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