There’s art but little substance in Trump’s latest deal

Discussion in 'Wall St. News' started by themickey, Oct 25, 2021.

  1. themickey

    themickey

    https://www.smh.com.au/business/mar...e-in-trump-s-latest-deal-20211025-p592vd.html
    Opinion
    There’s art but little substance in Trump’s latest deal

    Stephen Bartholomeusz Senior business columnist October 25, 2021

    Could the weirdness of the corners of the US financial markets be better illuminated than by the $US4 billion ($5.35 billion) valuation attributed to a company with less than $US300 million of cash, a social media site still under development and a brand cited for its association with a reality television show and the promotion of the Miss Universe pageant?

    That actually happened last week on Wall Street when shares in a SPAC – a special purpose acquisition company – rocketed from less than $US10 to more than $US94, inflating the valuation of the company from $US300 million to $US4.05 billion.

    [​IMG]
    Donald Trump will, assuming the deal clears any regulatory obstacles, get his $US293 million of cash and, if the share price remains elevated, could probably raise a lot more.Credit:AP

    The frenzy of activity in the shares of what Australians would recognise as something akin to a cash box company – a shell company with commitments from investors that could province it with $US293 million of cash – came after the SPAC, Digital World Acquisition Corp (DWAC), announced it had agreed to acquire Trump Media & Technology Group (TMTG).

    TMTG’s only relevant asset appears to be a social media site modelled on Twitter (from which Donald Trump has been banned) that is still under development, Donald Trump’s brand and an ambition to create “a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley.”

    A presentation of the deal on the TMTG website says DWAC’s acquisition values TMTG at an initial enterprise value of $US875 million, with the potential for an additional earn-out of $US825 million.

    There is no financial information in the presentation to explain how the valuation of up to $US1.7 billion was reached, although DWAC will soon have to file more financial information with the US Securities and Exchange Commission than it has to date.

    Instead the slides that were in the presentation provided an extraordinarily ambitious plan, albeit one without any substantive supporting detail, for the “Truth Social” and “TMTG+” network and streaming service TMTG says it will develop to take on Twitter, Facebook, Instagram, Netflix, Disney, CNN, Amazon and other mega tech and media companies named in the slides.

    To provide credibility for those ambitions the presentation cited a history of Donald Trump’s “entertainment success” – his hosting of Celebrity Apprentice and ownership of the Miss Universe pageant.

    There’s no reference in the presentation deck to Trump’s last listed adventure, Trump Entertainment Resorts, which owned six casinos at its peak but filed for bankruptcy three times within a decade.

    The “leader” of the “non-woke” subscription video service that will apparently feature entertainment, news, podcasts “and more” will be Scott St John, the executive producer of Deal or No Deal and America’s Got Talent

    DWAC, whose sponsors are a Brazilian politician and ally of the ultra-conservative Brazilian president, Jair Bolsonaro (the “Brazilian Trump”) and a former Deutsche Bank fixed interest derivatives trader, attracted commitments from mainly hedge funds less than a month before striking the deal with Trump.

    All he’s really doing is what he’s often done, which is renting his name to DWAC investors, with a lot of upside and nothing but reputational downside. For a man with very thick skin, there’s plenty of art in that deal.

    That is unusual. SPACs, or cheque book companies as they are sometimes called, are a faster and cheaper alternative to an initial public offering but can still take up to a year or more to find a private company to acquire.

    There has been a boom in SPACs over the last two years – $US100 billion was raised in the first half of this year alone – although their appeal does appear to be subsiding.

    Hedge funds and other institutional investors commit to the SPAC without knowing what it is going to acquire but have the right to withdraw their funds (and pull the rug on the deal in the process) if they don’t like the business being acquired or the terms of its acquisition.

    That’s unlikely to happen with the Trump deal as, given what’s happened in the market, they can sell their shares – some of the foundation investors committed funds at $US0.0029 a share – on-market and make a killing.

    That means Trump will, assuming the deal clears any regulatory obstacles, get his $US293 million of cash and, if the share price remains elevated, could probably raise a lot more. If TMTG is going to seriously pursue its extravagant ambitions it will need a lot more capital.

    Twitter, Facebook, Netflix, Amazon and their peers have incumbency, sectoral dominance and the self-reinforcing network effects they confer.

    Trump’s attempt to establish a blog – his new “communications platform” – after he was banned by Twitter and Facebook lasted less than a month.

    Trump’s poor business record outside property development (where he has also had some financial challenges over the years) hasn’t deterred investors, as evidenced by the bizarre performance of the market in DWAC shares on Thursday and Friday last week.

    [​IMG]
    Wall Street had a tepid finish to the week.Credit:AP

    DWAC has just over 30 million shares on issue As the share price soared, nearly half a billion shares were traded on Thursday and another 133 million on Friday.

    The Reddit chatrooms were alight, evoking memories of meme stocks like GameStop and AMC, where retail investors sent share prices soaring when they put the squeeze on hedge fund short-sellers of those stocks.

    Whether it was the Reddit and Robinhood crew or Trump’s MAGA crowd, or both, there was enormous retail investor activity in the market.

    Just as it wasn’t possible to rationalise the prices at which GameStop and AMC were pushed to earlier this year with any references to fundamentals, it is hard to understand why investors would pay $US94 or more for $US9.75 a share of cash and some quite vague and quixotic aspirations. It is easier, of course, to capitalise on uncapped optimism more aggressively than reality.

    With Trump having put up nothing of his own at this point to get some indeterminate but presumably large exposure, on paper, to the market value created by last week’s frenzy those investors have a lot more to lose than he does.

    All he’s really doing is what he’s often done, which is renting his name to DWAC investors, with a lot of upside and nothing but reputational downside. For a man with very thick skin, there’s plenty of art in that deal.
     
    murray t turtle likes this.
  2. %%
    MY tech etfs have plenty of leaders like FB, AMZN.....;
    but that tech/SPAC co could do very well for the same reason FOX News + CBN have done well.
    WILD swings in price, not in that one yet/LOL:caution::caution: