Explainer-Why Trump’s $1 billion capital increase was so well-liked By Reuters


© Reuters. FILE PHOTO: Former President Donald Trump speaks to supporters during the Save America Rally at the Sarasota Fairgrounds in Sarasota, Florida, July 3, 2021. REUTERS / Octavio Jones

NEW YORK (Reuters) – According to SPAC Research, the new company of former US President Donald Trump has launched the second largest private placement with convertible bonds for a merger with a blank check acquisition company thanks to its unusually favorable terms and despite the lack of its social media app.

None of the 36 investors who participated in the $ 1 billion capital increase this month, including many hedge funds and family offices, have revealed their identities. Many of them were concerned about publicly connecting with Trump, who was banned from Facebook (NASDAQ 🙂 and Twitter (NYSE 🙂 for promoting protests prior to the January 6 attack on the U.S. Capitol , sources told Reuters.

The structure of the so-called Private Investment in Public Equity (PIPE) was atypically favorable for these investors, although in the end they were able to pay more than three times what investors paid when the Blankoscheck acquisition company went public in September, according to industry experts.

This is because they are allowed to sell their shares immediately after the merger of the former president’s Trump Media & Technology Group (TMTG) and blank check acquisition firm Digital World Acquisition Corp., not months later, as is customary.

You have the right to buy the shares at a 40% discount to the average market price for the 10 days following the closing of the transaction, with an upper limit of $ 33.60 per share and a lower limit of $ 10 per share subject to the terms of the Deals.

These investors can sell the shares immediately after the transaction is complete for a profit. This sale would put pressure on the share price. If the stock falls enough, based on the formula of the deal, they could get more shares to sell again in what Wall Street calls a “death spiral” for the company’s stock.

However, the merger has proven popular with day traders and Trump supporters who invest in so-called “meme stocks”. It is possible that enough of them will buy the stock to offset the impact of the PIPE investors dropping their shares.

Another benefit offered to PIPE investors that is not seen in other such deals is the right to short the stock. This also allows them to secure profits as they can borrow stocks, sell them immediately, and then get their due stocks at a discount after the merger is complete so they can close out their positions.

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