(Bloomberg) — Hedge fund Kerrisdale Capital Management is betting against the shell company tied to Donald Trump, wagering that it will fail to get regulatory approval to merge with his media company and take it public.
Shares of Digital World Acquisition Corp., a special-purpose acquisition company, have more room to fall, according to a report Wednesday from Kerrisdale announcing its short position. DWAC gave misleading statements in registration documents and the high-profile nature of its potential combination with the former president’s company, Trump Media & Technology Group, is an “ideal way” for regulators to send a message to the broader industry, it said.
“DWAC is not just another dubious 2021 SPAC; it is a poster child for some of the worst abuses the investment vehicle has spawned,” according to the report from Kerrisdale, which is led by founder and chief investment officer Sahm Adrangi.
SPACs have faced increased scrutiny from the U.S. Securities and Exchange Commission after they exploded in popularity as a way for companies to go public without some of the rules required for initial public offerings. The crackdown could be the biggest obstacle to the Trump’s bid to create a media company to rival Twitter Inc., which banished him.
Shares of DWAC soared in October when the blank-check company announced it would merge with Trump’s media group, fueling a retail trader frenzy. The SPAC has since pared its advance after downloads of Truth Social, Trump’s social-media app, dried up and key technology executives departed.
“Truth Social’s disaster of a launch, among many other red flags regarding TMTG, raise valid concerns over execution and the company’s long-term viability,” Kerrisdale said in the report. “These factors raise serious doubts regarding the scope of due diligence DWAC conducted.”
DWAC will likely never file an S-4 with documentation of that due diligence, which will doom the merger, according to the report. That would wipe out 80% of its current share price of $45.61 and bring it back down to the $10 level where most SPACs raise capital.
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