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Former President Trump’s social media company has another potentially big problem on its hands: It’s struggling to complete an IPO that would allow it to raise more than the $1 billion it needs to keep running.
Trump Media and Technology Group, which includes the Truth Social app it launched earlier this year, had planned to list on the Nasdaq stock exchange through a complicated process known as a SPAC merger.
But that deal is under legal and regulatory scrutiny, and the Securities and Exchange Commission has yet to signal its approval.
The SPAC, or organization that will help list the stock, is called Digital World Acquisition Corp. and it now needs an extension for the IPO, it says on Thursday. The company has struggled to get support from enough shareholders to move the deadline.
Here are more details on what’s going on.
What is this about?
Instead of pursuing a traditional IPO, Trump Media and Technology Group decided to merge with a blank check company already listed on the Nasdaq.
Such agreements have become popular in recent years, when interest rates were close to zero. In effect, they provide private companies with a shortcut to going public – requiring less transparency than traditional IPOs.
The Trump company ( TMTG ) and DWAC announced their merger last October, but it needs regulatory and shareholder approval.
Since then, however, the two companies have suffered several setbacks.
In June, a New York grand jury subpoenaed TMTG, and according to DWAC, “certain current and former TMTG personnel have also recently received individual grand jury subpoenas.”
In addition, DWAC and some of its directors have been subpoenaed by the SEC, which is investigating the SPAC’s communications and due diligence.
In a filing, the SPAC said that “these subpoenas, and the underlying investigations by the SEC and the US Department of Justice … could materially delay, hinder or prevent the completion” of the deal.
Faced with a deadline to complete the deal, DWAC CEO Patrick Orlando asked the company’s shareholders – many of whom are individual investors – to approve a one-year extension.
But the company has been unable to secure enough support from investors, and a special meeting originally scheduled for Tuesday was quickly postponed, and two subsequent attempts to reconvene led to similarly quick postponements without an announcement of the vote numbers.
On Thursday afternoon, Orlando announced that the meeting would reconvene at noon on October 10.
“We are working diligently to record all votes that continue to come in from our shareholders and are adjourning this meeting to allow additional time for shareholders – whether small, medium or large – to cast their vote,” he said.
If enough shareholders do not agree to the extension, sponsors of the deal say they will throw more money into the shell company’s coffers, which would allow them to extend the deadline by another three months. If the deal is not completed by then, the sponsors can fund a further three-month extension.
What brought us here?
When former President Trump founded the Trump Media & Technology Group nearly a year ago, he acknowledged that it would be “difficult and expensive to build a new platform” that could compete with the likes of Facebook and Twitter.
“It has to be extremely well funded,” he said.
Digital World Acquisition Corp. has $293 million in cash, and completing the SPAC merger will provide the company with $1 billion in additional financing from private investors.
In the days following the announcement, investors signaled their support for the combination. Last October, DWAC’s share price rose to an eye-watering $175 per share.
But nearly a year has passed and the SEC has not given the deal its blessing, nor have DWAC’s shareholders.
DWAC’s shares have fallen sharply after both companies acknowledged they are under legal and regulatory scrutiny. Today it trades for around $23 per share.
The launch of the Truth Social app was delayed and it is still not available on the Android operating system.
What happens afterwards?
Chris Delmas/AFP via Getty Images
SPAC mergers must be completed on a set timeline, and at the moment it looks difficult for Trump’s social media venture to complete the merger.
If the deal is not approved by the deadline, and there is not another extension, DWAC will relax and President Trump’s media company will have to find a new way to raise money.
In a recent post on Truth Social, the former president appeared to downplay the difficulty of doing so.
“I don’t need funding,” he wrote. “Private company anyone???”
And as for the outstanding legal issues?
“In theory, they shouldn’t need to be fully resolved for this deal to go through,” said Michael Ohlrogge, an associate professor of law at New York University. The SEC’s “greatest interest is to see that the risks are fully and clearly disclosed to shareholders.”
DWAC has urged the SEC to complete its investigation, and in recent interviews, Orlando has said the company is cooperating with regulators.
“We’ve had some delays,” he said. “It’s going slower than expected, but we’re fighting every single day, working every single day to advance the ball.”