Last year in December, CF Acquisition Corp. VI unveiled its merger plan with Rumble, a social media streaming platform and rival to platforms like YouTube.

Rumble’s video platform has grown in popularity among conservative content creators. The company provides a high-growth neutral video platform to protect content creators from the cancel culture and promote freedom of speech. The stated objective of Rumble is to make the internet more open to different narratives.

The merger deal

CF Acquisition Corp. VI went public in 2021, as it offered 30,000,000 units at $10.00 per unit. CF Acquisition Corp. VI was organized as a blank check company. Blank check companies are publicly-traded companies that do not have any business in operation and are created only for the special purpose of acquiring or implementing a merger with another private company.

CF Acquisition Corp headquarters
CF Acquisition Corp headquarters in East 59th Street, New York.

On December 1, 2021, CFVI and Rumble announced the signing of a business combination agreement. At closure, the deal was to provide $400 million in proceeds, comprising $100 million from a PIPE financing and $300 million in cash held in the trust account of CFVI. The proceeds are to recruit new content producers to the Rumble and Locals platforms, grow Rumble’s staff, commence extensive marketing of the platform and services, make future acquisitions, and other general business objectives.

On September 15, 2022, CFVI’s shareholders approved the company’s plan to merge with Rumble Inc. The merged company is called Rumble (NASDAQ:RUM) and started trading on NASDAQ on Monday, September 19. 

The shares of the newly formed company Rumble Inc. jumped 40% on its first day of trading on Monday after the completion of the transaction. It would be fair to say CFVI shareholders have made a substantial return from this transaction from their original IPO price of CFVI of $10.

Background of the sponsor

CFVI was formed by Chairman and Chief Executive Officer Howard W. Lutnick and sponsored by Cantor Fitzgerald. Cantor Fitzgerald & Co., Inc. operates as an investment bank and brokerage company serving more than 5,000 institutional clients around the world. The company offers trading, securities, bonds, capital markets, investment banking, prime brokerage, commercial real estate financing, financial planning, and advisory services. 

Cantor Fitzgerald serves customers worldwide and is one of 24 primary dealers authorized to trade US government securities with the Federal Reserve Bank of New York. 

The company has a prolific special-purpose acquisition company underwriting practice. In 2021, Cantor Fitzgerald was only behind Citigroup and Goldman Sachs in terms of its underwriting practice, with bookrunner volume of $15.3 billion. In investment banking, a bookrunner is usually the main underwriter or lead manager/arranger/coordinator in equity, debt, or hybrid securities issuance. To lower bank risk, the bookrunner often works with other investment banks.

The merger of CFVI VI and Rumble Inc wasn’t the only merger deal done by Cantor Fitzgerald this year. Satellogic went public in January through a SPAC transaction with CF Acquisition Corp V.

Potential issues arising in a de-SPAC deal

Company mergers are closely monitored by regulatory authorities. The SEC has laid out a set of rules for companies to comply with who plan on doing a merger. The regulatory authorities strictly evaluate if a merger deal violates anti-trust or anti-competition laws and would strike down any transactions. 

However, in the case of SPACs, compliance is relatively easier for companies in case of a merger with SPAC, as one company is specially incorporated for a merger and is not operational.

If a SPAC meets the definition of a blank check company, it must follow Rule 419 of the Securities Act of 1933. In this case, investors’ funds are required to be held in escrow, the filing of a post-effective amendment upon the execution of an acquisition agreement, and the return of the escrowed funds if no acquisition occurs within 18 months of the effective date of the initial registration statement.

Most SPACs, on the other hand, are exempt from Rule 419 because they are constructed in such a way that they may rely on an exception from the definition of “penny stock” or fulfill other exclusions for listed firms.

Issuers that raise more than $5 million in a firm commitment underwritten initial public offering are excluded from the definition of “blank check company” in Rule 419 and thus are not subject to the requirements of the rule because they are not selling “penny stock”. 

Rule 419 requires a blank check company to meet certain disclosure and investor protection requirements in registered offerings of securities.

SPAC deals do not always go right. Many other SPAC deals have fallen apart or are trading far below their IPO price, such as BuzzFeed (BZFD).

According to Ozan Pamir. CFO of 180 Life Sciences, which went public through a SPAC deal, the costs related to the de-SPAC process can go out of hand very quickly, which include legal, accounting, and audit bills for both the acquirer and acquired company.

He further stated,” You can start a deal with a SPAC with them having hundreds of millions of dollars, [but] by the end of the process, you may end up with much less.” One reason for that is the deal includes rights and other instruments that can hurt the stock price at closing. “These instruments used to be more commonplace in the past but definitely still something to keep an eye on.”

Potential for dilution for CFVI stockholders

There is potential for massive shareholder dilution for CFVI shareholders. Current Rumble shareholders might get an extra 105 million shares (not current CFVI retail shareholders). They will get 50% of the 105 million shares if RUM trades over $15 for 20 days in a 30-day period after listing, and another 50% of the 105 million shares if RUM trades above $17.50 for 20 days in a 30-day period. Given the current stock price, it is unlikely that these 105 million shares will flow to current Rumble shareholders.

Rumble Inc has growth potential but would need to diversify its income streams

Rumble has gained much attention this year after it announced a deal with former President Donald Trump’s social media firm called Truth Social. Truth Social uses the Rumble Ad Center to place advertisements on its platform. Advertisers can now access Truth Social traffic and also Rumble traffic on Rumble’s Advertising Center.

Rumble is becoming increasingly popular with content creators because of their revenue-sharing model. Reportedly, YouTube pays about 15% to 20% of its ad revenues to its users/creators, while Rumble is sharing around 60%.

Rumble is still expanding, and the platform will take years to completely monetize users, with the current average revenue per user around $1 level. Rumble is yet to release financial results for the second quarter of 22. The firm recorded $4.0 million in sales for the first quarter, with a $0.5 million gross profit.

As we’ve seen with other social media networks, as they get more political, the ad revenues start to dry up. The success of YouTube is based on the algorithms that billions of people employ to keep politics out of their watching habits. This might pose a challenge for Rumble to continue increasing its revenue as it becomes a symbol of conservative politics. 

With the elections next year, free speech will become a talking point and increasingly important, which should benefit Rumble. The fact is that the more free speech is stifled, the better free speech media platforms will do.

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