Digital World Acquisition stock may face less short-seller pressure due to quirk in SPAC deals, expert says

• Digital World Acquisition stock has been on a wild ride ever since its deal to merge with former President Trump's company.
• Among many reasons for the rally, a Georgetown professor said it can also be attributed to how SPACs are structured.
• DWAC's prospectus said 11 anchor investors would buy up to 91.3% of the shares offered.

Digital World Acquisition stock has cooled off after a massive 1,657% rally last week on its deal to merge with former US President Donald Trump's new media company, but a quirk in blank-check deals may help limit the downside - at least in the short term.

Under the special purpose acquisition company's deal with the Trump Media & Technology Group, 11 anchor investors would buy up to 91.3% of the shares offered, potentially making only 9.7% available to the public, according to the prospectus of DWAC.

It is not clear how many shares they hold now as SPACs enjoy the privilege of disclosing fewer details about their companies. (Hedge fund Saba Capital already said it's dumped all of its unrestricted shares.)

But if the anchor investors control a big slice, institutional and retail investors would have had only a very limited amount of shares to bid on.

James Angel, a finance professor at Georgetown University, told Dealbook Tuesday that such scarcity makes borrowing shares to short DWAC stock difficult.

On Monday, however, short-seller Iceberg Research said it bet against DWAC stock and tweeted that "based on Trump's track record, at the current price, renegotiation is likely to keep more of the merged company for him."

In a second tweet, the short seller said: "No opinion on the probability of success of TMTG. But SPAC holders don't own a piece of this project yet. Trump has leverage, not them."

DWAC stock slipped 11% on Monday and tumbled 22% to $65.52 as of 10:39 a.m. ET on Tuesday.

The company has said it aims to counter Big Tech companies, including Amazon, Apple, Walt Disney, Netflix, Alphabet, Microsoft, and Facebook by launching a social media site called "Truth Social"

Early Tuesday, Trump Media and Technology Group said it will develop an on-demand streaming service.

The social network's app is available for pre-order in Apple's App Store and will open to invitees in November.