Should Trump Sack DWAC And Pursue Paltalk Or GigaMedia?

John Gilliam profile picture
John Gilliam


  • Heightened regulatory scrutiny could delay or even derail Trump Media & Technology Group's DWAC merger.
  • Tremendous value of Trump social media following may be lessened if merger delayed past midterm elections.
  • TMTG/Truth Social should consider alternative means of gaining funding through a NASDAQ listing.
  • Acquiring NASDAQ shell through direct buy or reverse merger could be quicker, lower cost and significantly less dilutive for TMTG shareholders.

Republican National Convention: Day Four

You're Fired!!!

Alex Wong/Getty Images News

Former President Donald J. Trump was famous for many things before becoming president, but none more than the famous "You're Fired" line he would bark each week in "The Apprentice" reality show. Given the delays, heightened regulatory scrutiny and red tape that has befallen his Trump Media Technology Group's (hereinafter "TMTG) attempt to go public by merging with special purpose acquisition company Digital World Acquisition Corp. (NASDAQ: DWAC), we are beginning to wonder if he should sack DWAC and take a different route to a public listing.

Many issues that will impact the timing (already long-delayed past the original Q1 expected closing) and whether the deal will actually get the regulatory approvals necessary to merge were laid bare in a recent short report issued by Kerrisdale Capital (see here). The author disclosed a short position in DWAC, so it is hardly surprising that the many issues highlighted also were presented in the light most favorable to someone who is hoping to see the company fail and this resulted in a suggested outcome focused on the very worst-case scenario. Such shading does not however change the fact that many of the DWAC-specific issues presented in the article are prima facie true and increasingly problematic for a company like TMTG that is seeking growth capital along with the prestige and liquidity of a NASDAQ listing through a SPAC merger. The problematic aspects have taken on even greater significance recently in light of the changes recently proposed by the SEC for SPAC mergers (see here), in particular the specialized disclosure requirements with respect to compensation paid to sponsors, conflicts of interest, dilution, and the fairness of these business combination transactions. Given these facts and some of the new disclosures in the recently filed S-4 (in particular the amendment allowing an increase from $1.5m to $30m loan from sponsor ARC that can convert into stock at $10 per share, worth $135m as of this writing and the disclosure that the previous SEC document "requests" are now described as "request and subpoena"), we believe that TMTG leadership should be at least considering alternative routes to going public and raising capital.

Our review of recent SPAC merger filings suggests that it often takes about 4-5 months after the filing of the S-4 for the comments, amendments, and final filings to complete the merger process. Given all factors mentioned in the Kerrisdale report and the highly charged political nature on this deal, it would not be surprising to see a DWAC/TMTG closing process take longer.

The purpose of this article is not to render a legal opinion on whether any of the DWAC specific issues constitutes a breach of the reps and warranties that would rise to the level of a "material adverse effect" allowing termination of the merger agreement under Article 8.2 of the contract or even to handicap the probability of overcoming each of those issues in a time frame that will be suitable for Mr. Trump's purposes. Rather, the purpose of this article is to highlight other avenues that could allow TMTG and Truth Social to gain funding and a NASDAQ listing sooner, with lower costs, lower risk and ultimately greater value for TMTG shareholders. We believe that the social media following cultivated by former President Donald J. Trump is likely one of the most under-appreciated assets in the social media space and that it can drive significant value for TMTG shareholders but believe that timing is of the essence and that a delay that pushes too deep or beyond the current election cycle could have a material negative impact on the value that can be realized.

At first glance, one might think TMTG should just pursue a different SPAC, one that doesn't have the timing, disclosure and other issues that appear to be present with the current deal and whose backers have not previously raised the ire of US regulators (see here). However, the recently proposed heightened regulatory scrutiny of SPAC deals mentioned above and the delays that would come with re-starting the SPAC process from scratch would probably make such an approach untenable.

We believe TMTG might do well to consider merging with an existing NASDAQ listed company, by either raising enough funding privately to acquire a smaller company or by doing a reverse merger with the closest thing they can find to a shell company. There are likely others that might be good prospects as well, but the following companies are good examples of companies that TMTG could pursue - Paltalk (NASDAQ:PALT) and GigaMedia (NASDAQ:GIGM). Each is trading at a discount to the value of the debt-adjusted cash per share it has in the bank and each satisfies all (Paltalk) or most (GigaMedia) or of the attributes the Kerrisdale short report indicated should be reasonably expected to be found in a young social media app company but were not materially present in TMTG:

PALT GIGM 10 Things Expect to Find in Social Media App Company
x x Customers
x x Working products
x x Executive team w/relevant experience
x Developers to build out a social media app & streaming video business
x Infrastructure to support a social media app & streaming video business
x x Corporate infrastructure - legal, HR, accounting
x x Financial or operating history of any kind
x x Cash resources from previous fundraising efforts
x x Corporate headquarters with distinct offices
x Valuable IP or patents

Paltalk would be an attractive target as it is currently trading at what is essentially a shell company valuation that accords no value to its operating business or intellectual property. Today's closing price ($1.97) is below the $2.10 per share net cash (no debt) it holds in the bank and the company's operations/structure essentially satisfy every shortfall listed in the Kerrisdale report. Paltalk's livestreaming social media network and asynchronous feed (like Facebook (FB) products are 100% complementary to TMTG's offerings and partnerships, as these two social media services are not offered by either Truth Social or Rumble (CFVI). Paltalk operates a profitable livestreaming social media network built on its own patented technology stack that has been vetted through 10+ years of operation. Many millions of consumers use the service each week and the company's long history of successfully converting free users to paid subscribers and/or buyers of virtual gifts is a business model that is already profitable with its smallish user base. It's not too hard to envision how quickly it could scale with the millions of new users that the Trump organization could bring. Paltalk's subscriptions and virtual gifts have 99% margins, and it could immediately monetize an influx of new social media users (Trump social media followers or otherwise) and catapult the revenue and profitability of the company. Would Trump social media followers buy virtual MAGA banners, hats, flags or other Trump adorned virtual swag (those over 40 and unfamiliar with virtual gifts should think virtual versions of "flair" at TGI Fridays or if under 40 think "skins" on Fortnite) knowing that 99% of their spend would provide an immediate boost to the TMTG bottom line?

Additionally, Paltalk's patent portfolio for streaming video could potentially produce hundreds of millions in licensing revenue and could conceivably be weaponized to take on what appears to be infringing services offered by Facebook, Zoom (ZM) and Alphabet (GOOG). Paltalk has already successfully enforced patent claims vs. Microsoft (MSFT), Sony (SONY) and Activision Blizzard (ATVI) plus has a trial date in a few months to enforce its' patents against Cisco/Webex. The combination of the trading range below cash in the bank, no debt, profitable business model that is highly complementary to TMTG's stated goals plus only 9.8 million shares outstanding makes Paltalk a particularly attractive target and one whose current filing status could accommodate a slightly tweaked $1B+ TMTG PIPE offering on terms that are more likely to pass the SEC's new standards regarding dilution and fairness than the current DWAC deal. GigaMedia is another example of a company TMTG might consider for its nearness to being a clean shell, although it does not have social media assets that would be of value to TMTG. GigaMedia's operating business (a very small casual gaming business that targets a non-US demographic), would have little attraction for TMTG but the company has no debt and $3.55 per share cash (net) in the bank. With a stock that currently trades in the $1.50-$1.60 range and only 11 million shares outstanding, TMTG could do a tender offer to buy the company at a 100%+ premium to its current price and then spin off the gaming business to the current executives or just shut it down. Even if TMTG ended up paying a small premium to the cash in the bank, it could conceivably gain a NASDAQ listing on the cheap and it could simply do a larger PIPE at closing to get back to the capital it is scheduled to receive in the DWAC merger. And just as with the Paltalk example above, TMTG gets the funding and the NASDAQ listing but in a time frame more conducive to maximizing value during the election cycle and likely with more value to TMTG shareholders through lower costs and less dilution.

In summary, we think TMTG should give consider sacking DWAC and getting its NASDAQ listing and funding through an alternative means if it appears that the totality of the circumstances surrounding its merger will lead to delays that could push closing out beyond the mid-term elections. Though it would clearly require some wrangling with majority shareholders of the target and there would likely be some wild trading in the target company that could make the trading in DWAC post TMTG announcement seem tame in comparison, the result of achieving a smoother route to the public markets and funding while encountering fewer regulatory roadblocks and less dilution for TMTG holders would more than justify the means. Acquisitions and/or reverse mergers of the kind proposed here are routinely completed in 60-90 days and if done right could allow TMTG to be hitting on all cylinders in time for the mid-term elections.

This article was written by

John Gilliam profile picture
John Gilliam holds a BBA from Millsaps College and a JD from the Cumberland School of Law. He is the manager of Point Clear Strategic Holdings in Point Clear, Alabama. Point Clear Strategic Holdings is a value oriented activist investment group seeking opportunities in small cap technology companies. Visit: Point Clear Strategic Capital (

Disclosure: I/we have a beneficial long position in the shares of DWAC, PALT, CFVI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My intent in publishing this article is to inform investors about developments related to DWAC, TMTG, Truth Social, Paltalk and GigaMedia. I did not and do not intend to suggest any specific action by any investor or shareholder and strongly suggest that any decision made to buy or sell shares of this stock be made after consultation with an investment advisor as to the suitability of such an investment. I currently own shares of Paltalk, GigaMedia, Rumble, and DWAC (but hedged in DWAC) in personal and foundation accounts. I may buy or sell shares at any time based on market conditions and the trading price of the securities indicated.

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