Trump media deal suffers blow as SPAC fails to win extension

The Truth social network logo appears behind a woman holding a smartphone in this photo illustration taken February 21, 2022. REUTERS/Dado Ruvic/Illustration

Sept 6 (Reuters) – The white-collar buyout firm that agreed to merge with former U.S. President Donald Trump’s social media company failed on Tuesday to secure enough shareholder support for a one-year extension to complete the deal.

At stake is a $1.3 billion cash infusion that Trump Media & Technology Group (TMTG), which runs the Truth Social app, is set to receive from Digital World Acquisition Corp (DWAC.O), the special-purpose acquisitions company (SPAC) that has signed an agreement in October to take TMTG public.

The transaction has been on hold during civil and criminal investigations into the circumstances surrounding the deal. Digital World had hoped that the US Securities and Exchange Commission (SEC), which is reviewing its disclosures about the deal, would now have given its blessing.

Digital World CEO Patrick Orlando told a special meeting of shareholders on Tuesday that he would push back the deadline for the vote to extend the SPAC’s life by 12 months to noon on Thursday.

Digital World needs 65% of its shareholders to vote in favor of the proposal, but support as of late Monday fell short, Reuters reported. Digital World did not disclose the margin on Tuesday. read more

Digital World shares ended trading in New York on Tuesday down 11.4% to $22.13.

Digital World is set to liquidate on Thursday and return the money raised in its September 2021 IPO to shareholders unless action is taken.

Digital World shareholders had been given more than two weeks to vote on the SPAC’s expansion, and it’s unclear whether another two days will make a difference. Most of Digital World’s shareholders are individuals, and getting them to vote through their brokers has been challenging, Orlando said last week.

Digital World said in a statement that if shareholders do not approve a one-year extension on Thursday, management plans to exercise its right to unilaterally extend the life of the SPAC by three months. The SPAC managers will lend $2.875 million to the SPAC as part of the arrangement, Digital World said.

The SPAC trustees have the right to unilaterally extend the life of the SPAC one more time, until March. It is unclear whether this will give enough time for regulators to come to a conclusion on whether to allow the deal to proceed.

A TMTG spokesperson said the company will continue to work with all stakeholders on the merger and that it hopes “the SEC staff will quickly conclude its review without political interference.”

An SEC spokesperson did not immediately respond to a request for comment.

Trump appeared to play down expectations of the deal with a post over the weekend on Truth Social: “I don’t need funding, ‘I’m really rich!’ Private company anyone???”

Digital World has revealed that the SEC, the Financial Industry Regulatory Authority and federal prosecutors have been investigating the deal with TMTG, although the exact scope of the probes is unclear.

The information sought by regulators includes Digital World’s due diligence documents on potential targets other than TMTG, relationships between Digital World and other entities, meetings of Digital World’s board of directors, policies and procedures related to trading, and the identity of certain investors Digital World has so.

TOUCH AT RISK

If the deal is completed, TMTG will receive $293 million that Digital World has on hand plus $1 billion committed from a group of investors in the form of a private investment in public equity (PIPE).

The PIPE is scheduled to expire on September 20 unless the deal is completed. Investment bankers for Digital World have been reaching out to investors in recent weeks to gauge their interest in expanding PIPE, a person familiar with the matter said.

It is unclear how TMTG will manage without access to Digital World’s funding. It raised $22.6 million through convertible debentures last year and another $15.4 million through bridge financing in the first quarter. The agreement with Digital World limits the debt that TMTG can take on before the deal closes to $50 million.

Digital World has said it believes TMTG will have “sufficient funds” until April 2023. TMTG said last week that Truth Social is “on a strong financial footing” and will soon start publishing ads.

Trump began using Truth Social in April, two months after it launched on Apple Inc’s ( AAPL.O ) app store. He has more than 4 million followers — a fraction of the 89 million he had on Twitter Inc ( TWTR.N ) before he was banned over his role in the January 2021 U.S. Capitol riots by thousands of his supporters.

Reporting by Echo Wang and Helen Coster in New York; Editing by Richard Chang and Jonathan Oatis

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