The Truth social network logo can be seen on a smartphone in front of a display of former US President Donald Trump in this image, taken on February 21, 2022.
Dado Ruvic | Reuters
Shares of Digital World Acquisition Corp. fell this week as the company missed a key TBEN to hold about $1 billion in funding for its proposed merger with former President Donald Trump’s media company.
DWAC, a special-purpose acquisition company, or SPAC, is set to be the ship to take Trump Media and Technology Group public. But the deal with Trump’s company has encountered several financial and legal hurdles.
related investing news
At its peak of 2022, DWAC’s stock traded at $97. Now the share price is around $16 as markets slide, the appetite for SPACs dries up and Trump faces an increasing legal threat. The stock fell about 3% on Friday.
DWAC has secured $1 billion in funding from private investors in public stocks, also known as PIPE, who would fund Trump Media after the merger. However, Tuesday was the expiration of these investors’ contractual obligations to the deal, allowing them to withdraw their funding.
These investors receive convertible preferred stock, which can be converted into common stock at a discount. By converting and selling these stocks, PIPE investors also have the power to significantly dilute the holdings of other investors, including former President Trump.
Trump Media, DWAC and the PIPE investors did not immediately return a request for comment.
Losing the $1 billion in funding is far from the only grief facing this deal and the parties involved. The merger is under investigation by the Securities and Exchange Commission for potential securities violations where a deal was discussed prior to the merger announcement. The Department of Justice is also investigating the deal.
In addition, Trump himself is facing increasing legal pressure. A lawsuit alleging widespread fraud by New York Attorney General Letitia James is just one of several legal actions against the former president. The former president is simultaneously under investigation for removing sensitive documents from the White House, his role in the January 6, 2021 Capitol riot, and his efforts to reverse the 2020 election results.
His Truth Social app, which was created after the ex-president was banned from Twitter following the events of January 6, is currently banned from the Google Play Store for violating Google’s content moderation policy. Google and Truth Social said this week they were still working on a fix.
If the merger goes through, it would bring in about $300 million for Trump’s media business without the $1 billion in PIPE investment. But even to get to that $300 million, there are still some hurdles to overcome.
DWAC needs to buy more time to get shareholders to postpone the merger by up to a year. DWAC CEO Patrick Orlando made a $2.8 million down payment to extend the merger TBEN to December. A shareholder vote is required for the one-year extension the company is seeking, but DWAC has so far failed to convince its many private investors to approve the extension. The next shareholders’ meeting is scheduled for October 10.
Amid this mounting pressure, Trump Media has issued a statement saying it will take legal action against the SEC for unlawfully obstructing the deal, blaming the Securities Exchange Commission’s “arming and politicization.”
“This unforgivable obstruction, which directly contradicts the SEC’s stated mission, hurts investors and many others who are simply following the rules and trying to expand a successful business,” Trump Media said.