SPACs have long had a dubious reputation because they give struggling or untested companies that would otherwise not find backers a pathway to the public markets. But in recent years,these lightly regulated entities have become all the rage because with interest rates remaining low,investors are eager for new places to put their money to work. In the past two years alone,such companies have raised $US190 billion from investors.
But even by Wall Street’s frothy standards,the swiftness with which Digital World reached a deal with Trump — which many in his inner circle didn’t know about — was remarkable.
Most blank-cheque companies take about 17 months to find a target and complete a deal after going public. Digital World gave itself a year,but found its target within a month of going public.
“That is an extraordinary time period,” said Usha Rodrigues,who teaches corporate law at the University of Georgia School of Law and has written about SPACs. “It is far outside the norm.”
Digital World founder and CEO Patrick Orlando previously worked for Deutsche Bank and other Wall Street firms. More recently,Orlando,who is based in Miami and knew Trump before the deal,according to one of Orlando’s colleagues,has launched three other blank-cheque companies. Although they have raised money from investors,not one has completed a deal. A plan to merge one of the SPACs,Yunhong International,with Giga Energy recently fell apart.
When Digital World went public on the Nasdaq stock exchange last month,it didn’t have the assistance of a brand-name investment bank. Instead,it turned to a small firm that until recently was called Kingswood Capital Markets.
This past summer,Kingswood changed its name to E.F. Hutton,adopting one of Wall Street’s most storied brands,presumably in a bid to improve its marketing cachet. (The original E.F. Hutton was famous for the advertising slogan “When E.F. Hutton talks,people listen.“) E.F. Hutton CEO Joseph Rallo didn’t respond to requests for comment.
SPACs have long had a dubious reputation because they give struggling or untested companies that would otherwise not find backers a pathway to the public markets. But in recent years,these lightly regulated entities have become all the rage because with interest rates remaining low,investors are eager for new places to put their money to work.
With the help of bankers at the newly renamed E.F. Hutton,Orlando and Digital World lined up 11 hedge funds and other institutional investors to serve as so-called anchor investors. They agreed to buy substantial slugs of shares in Digital World’s public stock offering September 8.
As is standard in blank-cheque deals,the investors in some cases ponied up as much as $US30 million without much guidance as to how Digital World would spend their money,officials at several of the hedge funds said. All they knew was what Digital World said in its securities filing — that it was looking to invest in “middle-market emerging growth technology-focused companies.” It didn’t give any hint that it was hoping to merge with a social media company or to work with the former president.
Vik Mittal,chief investment officer with Meteora Capital,one of the anchor investors,said the firm wasn’t aware of an imminent deal with Trump’s media company when it committed money to Orlando’s SPAC.
Orlando negotiated the deal with Trump,with whom he had a relationship. “I’m the CEO of the SPAC,and the conversations were generally at the highest levels,” Orlando said in a brief interview Thursday. He declined to comment on the details of the agreement or how it came together. “Everybody worked really hard,24 hours a day,” he said.
Some Republican groups immediately sought to use the announcement of the social media site for fundraising purposes. The Republican National Committee,for instance,sent a “BREAKING NEWS” email Thursday asking supporters if they would join the site.
The hedge funds that invested in Digital World appear to have profited at least on paper,given the stock’s steep rise on Thursday.
One of Digital World’s major investors was Saba Capital,a $US3.5 billion hedge fund run by Boaz Weinstein. Weinstein said on Thursday that after learning of the Trump deal,his firm sold much of its stake in Digital World in the early morning,notching a small profit before the shares soared higher. Weinstein’s wife,Tali Farhadian Weinstein,recently ran unsuccessfully for Manhattan district attorney as a Democrat.
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“Many investors are grappling with hard questions about how to incorporate their values into their work,” Weinstein said in a statement. “For us,this was not a close call.”
The New York Times
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