Trump media deal takes a hit as SPAC fails to get extension

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

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

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

The transaction has been frozen amid civil and criminal investigations into the circumstances surrounding the deal. Digital World expected that the US Securities and Exchange Commission (SEC), which is reviewing its disclosures about the deal, had already given its approval.

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Digital World Chief Executive Patrick Orlando told a special meeting of its shareholders on Tuesday that it would push back the deadline to vote on extending the life of the SPAC 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 Monday night fell short, Reuters reported. Digital World did not disclose the margin on Tuesday. read more

Shares of Digital World finished trading in New York on Tuesday down 11.4% at $22.13.

Digital World will liquidate on Thursday, returning the money raised in its September 2021 initial public offering to shareholders unless action is taken.

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

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

The administrators of the SPAC have the right to unilaterally extend the life of the SPAC once again, until March. It’s unclear whether this would provide enough time for regulators to reach a conclusion on whether to allow the deal to go ahead.

A TMTG spokesman said the company will continue to cooperate with all parties interested in the merger and that it expects “SEC staff to quickly complete their review without political interference.”

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

Trump appeared to manage expectations of the deal with a post over the weekend in 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 investigations is unclear.

Information sought by regulators includes Digital World documents on due diligence of potential targets other than TMTG, relationships between Digital World and other entities, meetings of Digital World’s board of directors, trade-related policies and procedures, and the identities of certain investors, Digital World has said.

PIPELINE AT RISK

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

The PIPE is scheduled to expire on September 1. 20 unless the deal is completed. Investment bankers at Digital World have been reaching out to investors in recent weeks to gauge their interest in extending PIPE, a person familiar with the matter said.

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

Digital World has said it believes TMTG will be “adequately funded” through April 2023. TMTG said last week that Truth Social is “on solid financial footing” and will begin running ads soon.

Trump started using Truth Social in April, two months after it was launched at Apple Inc. (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 by thousands of his followers for his role in the US Capitol riots in January 2021.