Digital World fails to extend Truth Social merger. According to sources on Monday, the blank-check acquisition company that agreed to merge with Donald Trump’s social media company did not have sufficient shareholder backing for an additional year to complete the deal.
Trump Media & Technology Group (TMTG), which runs the former U.S. president’s Truth Social app, is in negotiations with Digital World Acquisition Corp, a special purpose acquisition company (SPAC), to go public. At stake is a $1.3 billion cash infusion that TMTG stands to get.
Due to legal and criminal investigations into the circumstances of the deal, the transaction has been put on hold. The U.S. Securities and Exchange Commission (SEC) is now assessing Digital World’s disclosures on the sale, and Digital World had hoped to receive approval to move forward with the transaction by now.
Digital World CEO Patrick Orlando admitted last week that persuading the company’s individual investors to vote through their brokers has proven difficult.
In order for Digital World’s 12-month life extension plan to pass, it needs the support of 65% of the company’s shareholders. By Monday night, insiders indicated, far fewer Digital World stockholders had voted yes than were necessary.
This Tuesday, shareholders of Digital World will convene for a special meeting when the results of the vote will be announced. According to the sources, the executives at Digital World are beginning to evaluate other possibilities because they do not feel they will be able to get sufficient shareholder support in time.
Since the final vote tally has not been made public, the sources requested anonymity. Requests for comment addressed to Digital World and TMTG were not immediately responded to.
Digital World is reportedly considering postponing the vote date in a last-ditch effort to win over additional shareholders. Unless something changes before Thursday, the SPAC will liquidate and return the funds from its IPO in September 2021.
If Digital World is unable to gain shareholder agreement for a one-year extension, its management may unilaterally extend the company’s existence for up to six months. It’s not apparent whether or not Digital World will go this route, or if it would buy authorities enough time to decide whether or not to approve the deal.
Although the precise breadth of the investigations into the purchase with TMTG is unclear, Digital World has revealed that the SEC, the Financial Industry Regulatory Authority, and federal prosecutors have been scrutinizing the transaction.
Digital World has stated that regulators are requesting information including but not limited to documents pertaining to the due diligence of potential targets other than TMTG, relationships between Digital World and other entities, board meetings, trading policies and procedures, and the identities of certain investors.
Limits placed on debt.
If the purchase goes through, TMTG will receive $1 billion in private investment in public equity in addition to the $293 million in cash that Digital World already has on hand (PIPE).
If the transaction doesn’t go through by September 20th, the PIPE will automatically terminate. According to a source with knowledge of the situation, Digital World’s investment bankers have been reaching out to investors over the past few weeks to determine whether or not they would be interested in extending the PIPE.
It’s not obvious how TMTG is making ends meet without Digital World’s money. In 2017, it received $22.6 million in convertible promissory notes, and in Q1 of 2018, it received an additional $15.4 million in bridge financing. Prior to the closure of the purchase, TMTG can only assume up to $50 million in debt per the terms of the agreement with Digital World.
According to Digital World, TMTG has “adequate funds” until at least April of 2023. Truth Social is “on sound financial footing,” according to TMTG, and will shortly begin advertising.
In April, two months after Truth Social first appeared in the Apple app store, Trump began using it. More than 4 million people follow him on Twitter now, down from 89 million before he was banned for inciting violence in the U.S. Capitol in January 2021.