Trump media deal dealt a blow as SPAC fails to win extension

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

Sept 6 (Reuters) – The white check takeover that agreed to merge with former US President Donald Trump’s social media company on Tuesday failed to get enough shareholder support to extend it by a year to complete the deal.

At stake is a $1.3 billion cash injection, expected to be received by Trump Media and Technology Group (TMTG), which operates the Truth Social app, from Digital World Acquisition Corp. (DWAC.O)the special purpose acquisition company (SPAC) that signed a deal in October to go public with TMTG.

The deal was frozen amid civil and criminal investigations into the circumstances of the deal. Digital World had hoped that the US Securities and Exchange Commission (SEC), which is reviewing its disclosures about the deal, would now bless it.

Patrick Orlando, CEO of Digital World, said at a special meeting of his shareholders on Tuesday that he will move the deadline to vote on extending SPAC’s lifespan by 12 months to Thursday noon.

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

Digital World shares ended trading in New York Tuesday 11.4% lower at $22.13.

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

Digital World contributors have been given more than two weeks to vote on the SPAC extension and it’s not clear if two more days will make a difference. Orlando said last week that most of Digital World’s shareholders are individuals and that getting them to vote through their brokers has been difficult.

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

SPAC directors have the right to unilaterally extend the life of SPAC again, until March. It is unclear whether this will provide enough time for regulators to reach a conclusion on whether to allow the deal to go ahead.

A TMTG spokesperson said the company would continue to cooperate with all stakeholders on the merger, and that it hoped “SEC staff will promptly conclude its review without political interference.”

A spokesman for the Securities and Exchange Commission did not immediately respond to a request for comment.

Trump seemed to manage expectations about the deal with a weekend post on the Truth Social: “I don’t need funding, ‘I’m really rich! “Private company anyone???”

Digital World has revealed that the Securities and Exchange Commission, the Financial Industry Regulatory Authority and federal prosecutors are investigating the transaction with TMTG, although the exact scope of the investigation is unclear.

Information requested by regulators includes Digital World’s documentation on due diligence for potential targets other than TMTG, relationships between Digital World and other entities, Digital World board meetings, policies and procedures related to trading, and the identities of certain investors, Digital World has said.

Pipes are in danger

If the transaction closes, TMTG will receive $293 million owned by Digital World in addition to $1 billion pledged from a group of investors in the form of a private equity investment (PIPE).

The tubes are set to expire on September 20 unless the deal is completed. A person familiar with the matter said that investment bankers at Digital World have been reaching out to investors in the past few weeks to gauge their interest in scaling PIPE.

It’s unclear how TMTG will handle without access to Digital World’s funding. It raised $22.6 million through convertible promissory notes last year and another $15.4 million through bridge financing in the first quarter. The agreement with Digital World sets the indebtedness that TMTG can incur before closing the deal at $50 million.

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

Trump started using Truth Social in April, two months after it launched on Apple Inc (AAPL.O) App Store. He has over 4 million followers – a fraction of the 89 million he has on Twitter Inc (TWTR.N) Before he was banned for his role in the riots at the US Capitol in January 2021 by thousands of his supporters.

Additional reporting by Ekko Wang and Helen Koster in New York; Editing by Richard Chang and Jonathan Otis

Our criteria: Thomson Reuters Trust Principles.