Arnaud Vagner is no household name — even in the rarified world of short-selling where he plies his craft.
The reclusive founder of short-selling firm Iceberg Research nevertheless turned heads this week when he tweeted that his firm is betting against Digital World Acquisition Corp. — the special purpose acquisition company that last Thursday announced plans to merge with former president Donald Trump’s nascent media firm.
“We are short $DWAC,” Vagner tweeted Monday, referring to the SPAC by its ticker symbol. “Now that initial excitement has passed, we see only risks for investors in near future.”
After the merger announcement last week, Digital World’s shares rose more than 800 percent over two days as retail investors piled in, figuring that the former president’s private company, Trump Media and Technology Group Corp., would be able to successfully launch a social networking site to rival the likes of Twitter and Facebook, both of which have banned the ex-commander-in-chief.
In a telephone interview, Vagner is quick to point out that his short position has nothing to do with politics. “This is not about whether we like Trump,” he said, in a lilting French accent. Instead, Vagner argues that the very enthusiastic run up in Digital World’s stock price is likely to make it more difficult to consummate the proposed merger — something that most buyers seem oblivious to.
Here’s the rub: The terms of the deal and the details of any future financing are still very much in flux, as they tend to be at this stage in the SPAC lifecycle. Digital World had just $293 million cash in trust at the time of the announcement, which detailed that the money would be used to finance Trump Media’s rollout. The frenzied rise in its stock price, which closed at $64.89 Wednesday, pumped up Digital World’s market valuation to more than $2.3 billion.
Given that Trump Media’s announcement declared that the deal initially valued the company at $875 million, the real estate developer would seem to have every reason to demand more money in upcoming negotiations with Digital World.
“Would I leave so much money on the table?” asks Vagner. “Nothing is final. Everything can be changed.” He also wonders whether future PIPE financing, typically at $10 or $15 a share, could massively dilute existing stockholders.
The ex-president, who co-wrote a best-selling primer on real estate negotiations, Trump: The Art of the Deal, has certainly developed a reputation as a haggler. “What we would expect is that Trump asks for a better deal,” Vagner says.
The fact is that plenty of SPAC mergers, although often trumpeted in breathless press releases, are ultimately not consummated for any number of reasons. “In the SPAC business, many of those mergers fail,” says Vagner. “They didn’t price any risk into this.”
A spokesperson for Digital World said the company is not accepting questions from the press and referred to the company’s SEC filings. A spokesperson for Trump Media did not respond to an email.
Over the years, Iceberg has largely flown under the radar as a short-seller. A former employee of Hong Kong-based commodities firm Noble Group, Vagner published critical research reports on the firm starting in 2015 alleging accounting irregularities, which he claimed were designed to bolster the firm’s financials and those of affiliates. Other short-sellers piled in, although Vagner says Iceberg did not short the stock.
A spokesperson for Noble, which has since restructured, said the company had nothing to add.
Since then, Vagner and his colleagues have published research reports on more than a half dozen companies, according to Iceberg’s website.
Even by short-selling standards, Vagner holds his cards close to the vest. He declined to reveal how many people he works with, his location, age, or the size of his Digital World short.
Nor would Vagner disclose how he structured his short trade, be it by borrowing Digital World shares and selling them, buying put options, selling call options, or shorting the warrants that are packaged with the equity shares in a SPAC’s IPO.
He is adamant that his short has little to do with the prospects of Trump Media, and everything to do with the likelihood of the merger closing on decent terms for Digital World’s existing shareholders.
Still, the PDF of Trump Media’s corporate slideshow that Vagner examined, filled with broadsides against the “liberal” media and tech world, did leave him scratching his head. “It’s a PDF without any numbers,” he said.
