The social network’s Truth logo appears on a smartphone in front of former US President Donald Trump’s screen in this illustrative photo taken on February 21, 2022.
given by ruvich | Reuters
Shares of Digital World Acquisition Corp tumbled this week as the company missed a key deadline to hold nearly $1 billion to fund a proposed merger with former President Donald Trump’s media company.
DWAC, a Special Purpose Acquisition Company, or SPAC, is set to be the vessel for bringing Trump’s media and technology group to the public. But the deal with Trump’s company ran into several financial and legal hurdles.
At its peak in 2022, DWAC’s stock was trading at $97. Now, its share price is around $16 as markets dip, the appetite for SPACs dries up and Trump faces increased legal risk. On Friday, the stock fell about 3 percent.
DWAC has secured $1 billion in funding from private investors in public equity, also known as PIPE, which will fund Trump Media after the merger. However, Tuesday saw investors’ contractual obligations to the deal expire, allowing them to withdraw their funding.
These investors are given convertible preferred shares, which can be converted into common shares at a discount. By converting and selling these shares, PIPE investors also have the ability to significantly dilute the holdings of other investors including former President Trump.
Trump Media, DWAC and PIPE investors did not immediately respond to a request for comment.
The loss of $1 billion in funding isn’t the only woe facing this deal and the parties involved. The merger is under investigation by the Securities and Exchange Commission for potential securities violations involving discussions about a transaction prior to the merger announcement. The Department of Justice is also investigating the deal.
In addition, Trump himself faces increasing legal pressure. A lawsuit alleging widespread fraud from New York Attorney General Letitia James is just another case in an already big pile of legal action against the former president. The former president is simultaneously under investigation for the removal of sensitive documents from the White House, his role in the January 6, 2021, Capitol riots, and his push to annul the results of the 2020 election.
The Truth Social app, which was established after the former president was banned from Twitter after the events of January 6, is currently banned from the Google Play Store for violating Google’s content moderation policies. Google and Truth Social said this week that they are still working on a solution.
If the merger goes ahead, it will save about $300 million for Trump’s media company without $1 billion in PIPE’s investment. But even getting $300 million will require overcoming several other hurdles.
The DWAC needs to buy more time to get shareholders to agree to delay the merger by up to a year. Patrick Orlando, CEO of DWAC, has deposited $2.8 million to extend the merger deadline through December. A shareholder vote is required for the company’s aspired one-year extension, but the DWAC hasn’t been able to rally many retail investors to agree to the extension yet. The next shareholder meeting is scheduled for October 10.
Amid this mounting pressure, Trump Media released a statement saying he would pursue legal action against the Securities and Exchange Commission for needlessly blocking the deal, blaming it for “arming and politicizing” the SEC.
“This unwarranted obstruction, which is in direct conflict with the stated mission of the Securities and Exchange Commission, is detrimental to investors and many others who follow the rules and try to expand their successful businesses,” Trump Media said.
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