‘This is weird and murky.’ Trump SPAC deal values firm at more than $10 billion despite red flags

By Matt Egan, CNN Business

Former President Donald Trump’s new media venture has no known revenue or product.

Trump Media & Technology Group (TMTG) posted an investor presentation last week that appears to contain errors and seems to have been partially copied and pasted from the internet. Bizarrely, one slide defines a user as a “sales representative who travels to visit customers,” a definition that makes little sense given that this is a media company, not a sales platform.

TMTG’s incoming CEO, Republican Congressman Devin Nunes, has no business experience in technology or social media. And federal regulators are investigating the deal to bring the media venture public.

Despite these red flags, TMTG is creating enormous buzz among at least some investors and has achieved an implied valuation above $10 billion, according to Renaissance Capital.

“This is weird and murky,” Matthew Tuttle, CEO of Tuttle Capital Management LLC, told CNN. “I’ve never seen anything like this before. And I probably never will again.”

TMTG, chaired by the former president, simultaneously revealed a deal to go public through a merger with Digital World Acquisition Corp., which is a type of a shell company known as a SPAC, or a Special Purpose Acquisition Company. SPACs raise money that must be used to acquire and bring public private firms. Essentially they are blank-check firms that exist solely to find suitable merger partners.

SPACs have become very popular on Wall Street, in part because they can save time and money compared with traditional initial public offerings. Celebrities including Alex Rodriguez, Larry Kudlow and Shaquille O’Neal have gotten involved in SPACs, prompting regulators to warn investors not to invest in a SPAC just because a celebrity is involved.

Implied valuation above $11 billion

The Trump SPAC instantly set off a frenzy on Wall Street — even though little was known about the new entity. Shares of Digital World skyrocketed as much as 1,657% in the days after the deal was announced before eventually retreating.

“This is now the meme stock of all meme stocks,” said Tuttle, whose firm issues ETFs, including several that focus on the SPAC market. “Take all of the buzz going around about AMC and GameStop in January and February and multiple it by a million and that’s what this is.”

Based on Digital World’s Monday closing price of $50.49, the SPAC deal implies a valuation on TMTG at about $10.5 billion, according to Renaissance Capital, which provides IPO-focused ETFs and pre-IPO research. That implied valuation includes warrants, private placements and a deal to raise $1 billion upon the completion of the SPAC merger.

Tuttle, who said his firm briefly owned shares in Digital World before they skyrocketed, called the valuation “somewhat frightening” and “ridiculous.”

“Treat this like a gamble, because it definitely is,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital. “It seems like a lot of the valuation is based on hype and the personal popularity of Donald Trump. That’s not a sound investment rationale.”

‘It didn’t really make sense’

One of the many unusual aspects of the Trump SPAC is that the parties initially released very little concrete information about the fundamentals of the business.

New documents were released last week, but they raise more questions than answers.

A 38-slide presentation filed by TMTG includes a page titled “Infrastructure” that defines a user as a “person, or organization, or system that has one or more roles that initiates or interacts with activities.” It goes on to say that includes a “sales representative who travels to visit customers.”

That definition is hard to reconcile with the fact that TMTG is supposed to be a conservative media company, not a platform that caters to traveling salespeople.

“It didn’t really make sense,” Kennedy said. “A better example of a user would be ‘US residents with internet access’ or ‘one of the 89 million followers of Trump’s former Twitter account.'”

Judd Legum, who writes the political newsletter Popular Information, flagged the definition of a “user” in a Twitter thread over the weekend. Legum pointed out that the language on the infrastructure slide is just “cut-and-pasted from other sites.”

Indeed, the slide’s description of database servers matches what is written on a page last updated in 2016 on Techopedia, a website that includes a tech jargon dictionary. The definition of load balancer matches what is listed on a page on the website of Citrix.

Likewise, the definition of a client matches what is found on the website of Cloudflare.

“In other words, not only does this company not have any technical infrastructure,” Legum wrote, “it could not be bothered to even write its own slide of what the infrastructure will be.”

TMTG did not respond to requests for comment.

‘Serious errors’

But these are not the only oddities in the investor presentation.

Kennedy, the Renaissance Capital strategist, notes that slide 5 shows the PIPE (private investment in public equity) potentially converting into 13.7 million shares, even though other filings indicate the minimum is actually 29.8 million. Another line in the same slide appears to have another error about the number of shares to be held by TMTG stockholders, Kennedy said.

Another unusual element of the presentation is that slide 21 in the deck lists first names and last initials only of the members of TMTG’s technology team.

“I believe they’re moving very quickly to capitalize on the current share price, so that could explain some of the errors, inconsistencies and other abnormalities,” Kennedy said.

TMTG is not the only company in a SPAC deal to have typos and errors in filings. Kennedy said in the last year, he’s noticed more of these issues creeping into investor presentations.

“This is a bit more. It’s an error regarding the valuation and very fundamental components of the deal. These are more serious errors than we normally see,” he said.

Projecting just $1 million in revenue next year

The slide deck lists an array of financial projections, including that Truth Social could reach 81 million users by 2026 and generate $13.50 in average revenue per user. The presentation states that TMTG+, the planned streaming app, is projected to reach 40 million total subscribers by 2025 and generate $9 in average monthly fees per user.

“TMTG aspires to create a media powerhouse to rival the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, who have used their unilateral power to silence opposing voices in America,” TMTG says in the presentation.

The company said TMTG+ could deliver a price point close to that of Netflix “given President Trump’s highly enthused base.”

Yet the presentation also concedes that the business doesn’t amount to much at the moment.

One slide indicates management projects to generate just $1 million in revenue next year, based solely on Truth Social.

“This is extremely high risk. It is really buying a pig in a poke,” said Jonathan Macey, a professor at Yale Law School. “But apparently a lot of people seem to believe that something can be made of this because the valuation really is soaring.”

TMTG recently announced a deal to raise $1 billion upon the completion of its SPAC agreement.

However, the company did not disclose who the investors committing $1 billion are, other than to say they are a “diverse group” of institutional investors.

Renaissance’s Kennedy said the terms of the $1 billion investment are “unusually favorable” to the investors, granting them preferred shares that convert to common shares at a steep discount.

SEC and FINRA are investigating

The Trump SPAC is also the subject of regulatory scrutiny.

Last week, Digital World said in a filing it received a document and information request from the Securities and Exchange Commission in early November. Among other items, Digital World said the SEC request sought documents and communications between Digital World and Trump Media and Technology Group.

Digital World also said Wall Street’s self-regulator, the Financial Industry Regulatory Authority, or FINRA, is looking into trading prior to the deal’s announcement.

In late October, the New York Times reported that Trump began discussing a merger with Digital World long before the blank-check company went public and before such talks were disclosed to investors.

That prompted Senator Elizabeth Warren to call for the SEC to investigate whether any laws were broken by Digital World because the company repeatedly told shareholders that it had not held substantive talks with a target company.

Devin Nunes is the new CEO

Trump’s own role in the SPAC deal is unclear. The filings do not clearly indicate the former president’s role, beyond describing him as the chairman of TMTG. Trump did not respond to requests for comment.

TMTG reached a deal to go public in October despite not having a CEO. That vacancy has since been filled by Nunes, the California Republican who recently announced he will leave the House to join the Trump social media firm.

Yet Nunes, a former cattle and dairy farmer, does not appear to have any business experience in social media or technology. His Congressional website says he has a bachelor’s degree in agricultural business and a master’s in agriculture. Nunes did not respond to requests for comment.

The fact that TMTG won’t be run by an executive with a proven track record in technology or social media adds to the risky nature of the venture. Countless startups with far more experienced executives have tried and failed to crack this market.

“It’s difficult to build a social media company. Even after Twitter generated hundreds of millions of users, there were doubts about the company,” Kennedy said. “You can throw money at these projects, but it’s hard to build a sticky platform.”

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