DJT shares fall another 10%. Could Trump Media Plunge to Finally Sign the End of SPACs?

As the threat of insider selling continues to loom over investors, shares of Trump Media (Nasdaq: DJT) fell back to new lows on Friday, falling another 10% on Monday to $12.15 a share, its lowest point as a public company.

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While the parent company of Donald Trump’s Truth Social platform does not appear to have made any filings with the Securities and Exchange Commission (SEC), notifying regulators of any significant shareholder sales that have recently been restricted by settlement agreements block, Trump Media has steadily declined. for more than a week. DJT shares have now lost around 30% of their value in just the last five days.

Just six months ago, Trump Media had a $10 billion valuation. Today, it stands at about $2.5 billion. Meanwhile, the stock price has fallen more than 80% since its public debut through a special purpose acquisition company (SPAC).

Trump Media has been in much of the media spotlight lately because of its ties to the presidential candidate and the possibility that early investors, including ARC Global, which sponsored the blank check firm that took Trump Media public, and United Atlantic Ventures , an entity controlled by two former competitors on apprenticethey could sell their properties. (Trump, who owns 60 percent of the company, has seen his lock-up period expire but has said he has no plans to sell DJT stock.) But Trump Media isn’t the first SPAC to give investors heartburn.

SPAC implosion

Several well-known companies that have used a SPAC to go public have run into problems. In 2021, DNA testing service 23andMe merged with a SPAC to go public, with the stock topping $16 that year. Shares are now trading at 34 cents after losing 97% of their value – and last week the company’s entire board resigned, saying the founder/CEO had failed to come up with an “actionable” plan to take the company private after struggling to make a profit.

BuzzFeed, which joined the Nasdaq in 2021 through a SPAC, is another example. SPAC’s stock hovered near $40 until the weeks before the merger with the media company was made official. Today, the stock trades at less than $3 — and that number would be much worse if it weren’t for a 1-for-4 reverse stock split earlier this year that was necessary to prevent BuzzFeed from being spun off.

And last week, BurgerFi, which went public through SPAC in 2020, announced plans to close 19 locations of its flagship restaurants, as well as Anthony’s Coal Fired Pizza. The company’s shares have been delisted and are no longer traded on Nasdaq.

The story continues

Other notable SPACs that have seen their value disappear include WeWork and Virgin Orbit. In 2023, at least 21 companies that went public through SPACs filed for bankruptcy.

Is this the end of SPACs?

The steady decline of Trump Media’s DJT stock has put SPACs back in an uncomfortable spotlight. While extremely popular in 2020 and 2021, they have lost much of their momentum due to high-profile bankruptcies and investors realizing the risks of the lack of due diligence typical of this alternative method of going public . Quite often they don’t outweigh the reward, certainly in the long run.

Earlier this year, the SEC adopted new rules that place more legal responsibility on both blank-check companies and their acquisition targets to disclose more about their projected earnings.

However, despite this additional scrutiny, SPACs are not completely dead yet. About 39% of all IPOs in 2024 (34 out of 88) were through SPACs. That’s well off the pace of the early 2020s — in 2021, for example, 613 of 968 IPOs were through SPACs — but still a sizable percentage.

The SEC hopes the new rules will protect both those investors and those who see a storm and jump in.

“Just because a company uses an alternative method of going public does not mean that its investors are less deserving of time-tested investor protections,” SEC Chairman Gary Gensler said when the new rules were adopted. “(These changes) will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, and issuer obligations. Taken together, these steps will help protect investors.”

This post originally appeared on fastcompany.com
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