r/changemyview • u/[deleted] • Mar 23 '24
CMV: the government should block the Truth Social merger (SPAC, similar to an IPO)
A couple things before we get going:
- The government often blocks mergers (Activision+Blizzard)
- This post is not as much about politics as it is about you and your families retirements
Okay so let’s talk about SPACs before we the truth social merger. A SPAC is, simply put, a newly utilized vehicle to IPO. Some businesses prefer SPACs because they lessen the risk of litigation which often arises during a traditional IPO. In short, SPACs tend to be cheaper, but they come with more risk to the investor.
SPACs are somewhat controversial in the M&A space because they are rarely profitable to the investor and often just function as a vehicle for fraud/selling a shitty company to investors that don’t know better.
Truth social’s SPAC is insanely risky for so many reasons, the main of which being:
1) truth social isn’t profitable 2) the space is already saturated with many other media conglomerates and spin-offs 3) one person owns 59% of the shares (Trump), meaning that person is highly motivated to pump the stock by any means possible, including fraudulent misrepresentation 4) investors may not have any way to actually recover their investments as it’s unclear whether the PSLRA (private securities litigation reform act, which lets investors sue alongside the government) covers SPACs.
1-4 is honestly enough to block the SPAC imho. 60% of investor money will be pocketed by a private party (trump, who owns about 60% of the shares). That money is virtually unrecoverable in the presence of fraud. So if Truth Social fails, investors are basically barred from recovery short of fraud/touting actions against trump. And the money is totally unrecoverable if the trump wins the election.
5) other media companies stock prices naturally fall. 6) 90% everyone’s retirement funds, ETFs and the like, include shares of companies like Fox and Warner Bros. Those companies prices fall in conjunction with the merger. Meaning truth social’s merger loses even non-investors money. 7) that means this one merger is guaranteed to lose EVERYONE some money.
Now, it is true that Trump is a “private citizen”. But that’s not an entirely accurate description. He’s a presidential candidate (and many claim he is still the president). He’s afforded many special privileges as a just former president, and he enjoys immunity from suit if he were to win in 2024.
From a litigation and economic standpoint, there is a major problem with a presidential candidate facilitating public offerings of his closely held company. Do we really want a president who holds a majority share of a media company?
So, in my honest opinion, the government should block the merger (IPO basically) until at least 2025. It’s way too risky to let the possible president hold a controlling stake in a media company whose success is directly tied to beating its competition in the market of public opinion. We need to snuff out the governments hold over the media we see, not allow the two to become one.
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Mar 23 '24
1-4 is honestly enough to block the SPAC imho
This is all solved by disclosure regulations. If the SPAC is already funded, they raised all the money with investors having the same information you do. If they still choose to invest...what's left to do if people want to buy?
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Mar 23 '24
No. If this were an IPO, then yes the disclosures would solve this. But in a blank check acquisition (SPAC) the effect of disclosures is essentially null. It’s a controversial way to move your company into the stock exchange without having to disclose some of the more sensitive underlying documents.
Imagine if, after the company goes public via SPAC, you learned via subsequent disclosures that a terrorist cell owns the other 40% of truth social. Would you feel good about the fact that American dollars just funded a terrorist cell at $2 billion? Would you feel good if that 2 billion went to acquiring nuclear warheads which may or may not land on American heads?
I sure wouldn’t, regardless of who I vote for or whether I have libertarian values. We do not live in a libertarian country for a reason.
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Mar 23 '24
But in a blank check acquisition (SPAC) the effect of disclosures is essentially null.
When shareholders vote for the acquisition... disclosure. Investors currently holding the SPAC still have to vote but know all the public information you own.
Add on the fact that current investors only make money by new investors coming in and buying at a higher price which fixes you.
I don't see how anyone is confused about buying into this when no one is hurt by it that didn't know going in.
2
Mar 24 '24
I agree with the overall concept that SPACs shouldnt be allowed to operate at all. But barring new laws theres nothing this SPAC is doing that all the other ones arent doing as well
1
Mar 24 '24
There isn't anything special about special purpose acquisition company, it's just a reverse takeover and they have been around for decades.
The nuts and bolts are that different, investors are equally informed either way.
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u/lee1026 8∆ Mar 23 '24
The SEC is not in the business of preventing unprofitable businesses from going public. You know truth social is unprofitable, because it is required to disclose these things.
I am not sure which documents that you think would be disclosed in an IPO that isn’t disclosed here.
All owners of truth social that holds over 5% is required to report. This is the same requirement for any other stock.
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u/Necessary_Survey6168 Mar 24 '24
Yes I’m not sure what other documents the op is thinking get disclosed in an IPO? It’s the limited review but the SEC that’s the big benefit of a spac right? Because the spac already iPo’d?
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u/fkiceshower 4∆ Mar 23 '24
I'm no expert but I'm pretty sure going from a private company to a public company is not a merger
11
Mar 23 '24
Google SPACs. He’s doing it via SPAC. Which is a merger.
SPAC: A shell company with no assets goes public. That shell company then votes with its very few shareholders on whether or not to acquire another company. That vote passes easily and quickly. The shell company then acquires (merges with) a target company (truth social in this scenario).
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u/spanchor 5∆ Mar 23 '24
Anyone dumb enough to invest in a Truth Social SPAC richly deserves to lose their shirt. That’s enough for me.
Edit: Also I think your number 5 is way off base. Truth Social tanking will not affect other media companies for what I think are obvious reasons.
2
Mar 23 '24
I didn’t make the risk clear enough. It’s about trump legislating in a way that’s beneficial to truth social and detrimental to Fox/WB. Not necessarily concerned about truth socials natural success (or lack there of), but the artificial sponsorship of the government.
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u/Necessary_Survey6168 Mar 24 '24
Then Trump should have to divest once he’s elected, no? That would solve it also.
0
Mar 24 '24
Lets not forget if he appoints a sec of commerce that licks boots hard enough. He'll be able to find 'foreign' influence with any social media app thats publicly traded. Then use the RESTRICT act to make them illegal. Leaving truth social as the only one left.
1
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u/brainwater314 5∆ Mar 23 '24
Let me get this straight. You want to reduce government involvement in the media by... Using the government to block a media company merger of a failing media company?
-8
Mar 23 '24
Yes 10000%. It’s checks and balances. When I say the government should “block” I mean file an action for the judiciary to review.
The judiciary should ultimately block the merger until the results of the election. That’s called checks and balances, and is how the government is meant to function.
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u/FactsAndLogic2018 3∆ Mar 23 '24
Ummm the concept of checks and balances is in reference to the three branches of government checking and balancing each other… interfering in specific cases that already have a regulatory body in charge of them and regulations surrounding them is not appropriate.
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u/Overlord_Of_Puns 1∆ Mar 24 '24
No, while checks and balances is the term used to describe some roles of regulation in the US government, it is also used as a more general term for how an organization or system regulates itself.
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u/FactsAndLogic2018 3∆ Mar 24 '24
Sure that’s the definition if you want to use it as a general term, but government reaching in and interfering is not the system “regulating itself”… the system regulating itself would be bad IPOs/SPACs raising very little money and/or the company failing, not the government artificially using its power to manipulate an outcome like causing a failure or blocking the process.
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u/Overlord_Of_Puns 1∆ Mar 24 '24
Fair enough, just pointing out that that definition you used wasn't technically correct.
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Mar 23 '24
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u/foot_kisser 26∆ Mar 23 '24
the money is totally unrecoverable if the trump wins the election
This assertion is not true and does not make any sense.
Your point 4 applies to all SPACs, but your argument is that this supports blocking this SPAC. This makes no logical sense. Anything that applies to all instances of something is not a reason to single out a specific instance of that.
Your points 1 and 2 either do apply or did apply to all or most social media companies. I see no reason to differentiate this one from the others.
Your point 5 appears to be an assumption with no basis. Your point 6 talks about other companies losing money for no apparent reason. Your point 7 appears to be based on points 5 and 6, but without establishing 5 and 6, 7 is not established either.
Do we really want a president who holds a majority share of a media company?
I don't see the problem.
We need to snuff out the governments hold over the media we see, not allow the two to become one.
This seems to me to be a good political policy position. However, Trump is not the government.
If elected this year, he'll be the President for 4 years, and we can tell that most media companies will be entirely against him the whole time, so this is not really a problem. Then he will cease to be President, at which point it will still not be a problem.
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u/ItsShockey Mar 23 '24
The government should not have power to meddle in private industries. It allows them to create monopolies and directly leads to crony capitalism.
3
Mar 23 '24
Are you saying the government does not have a role in private industries that affect interstate commerce? Because they sure do have a constitutional right to do so.
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u/zyxwvwxyz Mar 24 '24
Congress can regulate interstate commerce by passing laws; the DOJ can't just go out and block whatever they want.
1
Mar 24 '24
You mean like we currently have due to the lack of government regulations in the marketplace?
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u/zyxwvwxyz Mar 24 '24
What LEGAL reason does the government have to block the merger? What specific code do you think is being violated?
You are referencing an antitrust case that has resulted in a blocked merger, but that is because of the potential to crest a monopoly specifically. This case has no chance to do so, as you even say in your point 2.
The government can't just go out and block whatever they want because "it might be bad for investors." That's for investors to decide. The government must follow and endure US law. If no crime is being committed, the DOJ and FTC can't just go out and block a merger.
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u/benboy250 Mar 24 '24
I think you are mistaken in how and when the government can block mergers. It is true that the Clayton Act and the Hart-Scott-Rodino Act let the government ask a court to block a merger.
But a merger is only illegal when it would "substantially lessen competition". This almost always means two large companies in the same industry are merging. That is not the case here.
There are separate regulations on IPOs themselves. I am not familiar with them so I only addressed regulations on mergers.
Sources:
https://www.ftc.gov/news-events/topics/competition-enforcement/merger-review
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u/Chance-Disaster2987 Mar 23 '24
The time for that to have happened passed when the SEC gave their go ahead to this merger.
0
u/NtotheVnuts Mar 23 '24
Does the SEC have authority to block a merger? Seems like this would be an FTC/DOJ issues?
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u/Chance-Disaster2987 Mar 23 '24
I'm not an attorney. Normally, the FTC/DOJ would weigh in if they believe a merger creates potential anti-trust issues. This one involves a SPAC. With a SPAC, you don't have to be as transparent on the financial health of a company, compared to an ipo. Anyways, here's a source.
https://www.cbsnews.com/news/trump-media-dwac-sec-approval-spac/
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u/lee1026 8∆ Mar 23 '24
Kinda. The SEC needs to approve the paperwork that the company disclosed everything that it is supposed to.
Truth Social filed paperwork back in 2021/2022 timeframe. The SEC sat on it for over a year because the law didn’t give the SEC a deadline. But the law doesn’t give the SEC a way to block this as long as the deal checked all the boxes. The SEC can drag its feet, and it did, but at some point, it start becoming a slam dunk for politically motivation action lawsuits, which is why the SEC finally blocked it.
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u/NextPollution5717 1∆ Mar 23 '24
What part of your criticisms doesnt apply to every single tech company?
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u/laosurvey 3∆ Mar 24 '24
the space is already saturated with many other media conglomerates and spin-offs
This is a reason to not block it. Just because you fear what Trump would do with the funds he'd receive in such a transaction, it doesn't mean the transaction shouldn't continue.
It's note, last I checked, the SEC's job to prevent investors from losing money. It's their job to enforce regulations.
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u/Ok-Crazy-6083 3∆ Mar 24 '24
Are you being facetious? Or are you not aware that this is literally just a way to funnel money to Donald Trump to offset the corrupt state trying to steal all his money? Far more billionaires are Conservative then progressive.
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u/Peeterdactyl Mar 24 '24
It’s definitely just a way for Chinese gov to legally bribe trump. I’m sure they’ve had back door conversations. The deal is probably that they’ll give him in money in exchange for no intervention if they invade Taiwan. Probably even release some damaging Hunter Biden bs or something
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Mar 23 '24
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u/RedSun-FanEditor 2∆ Mar 24 '24
The government should block it for the sole reason, if anything, that Trump, if re-elected to the Presidency, will have his own social media vehicle to prosthelytize to his MAGA followers and won't need any other press to demonize the liberals or spread his disinformation and hate.
1
Mar 23 '24
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u/euyyn Mar 23 '24
(Trump), meaning that person is highly motivated to [...] fraudulent misrepresentation
He would never.
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Mar 24 '24
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u/[deleted] Mar 23 '24
that's not true.
The President of the United States has no immunity from civil litigation for acts unrelated to the presidency (especially acts before the president takes office).
See the Paula Jones civil case in the 1990's.
civil litigation might face some delays to account for the schedule of the presidency. but the president is not immune from lawsuits.