Trump Truth Social’s exclusive deal partner fails to secure support for SPAC expansion – sources

In this illustration taken on February 21, 2022, the logo of the social network of Truth appears on a smartphone in front of the display of former U.S. President Donald Trump. REUTERS/Dado Ruvic/Illustration/File Photo

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Sept 5 (Reuters) – The blank-check buyout company that agreed to merge with Donald Trump’s social media company failed to garner enough shareholder support to extend a year to complete the deal, people familiar with the matter said on Monday.

The risk is that Trump Media & Technology Group (TMTG), which operates the former U.S. president’s Truth Social app, will receive a $1.3 billion cash infusion from special-purpose acquisition company (SPAC) Digital World Acquisition Corp (DWAC.O). Last October, the company signed an agreement to list TMTG.

The deal has been stalled amid civil and criminal investigations into the circumstances surrounding the deal. Digital World had been hoping the U.S. Securities and Exchange Commission (SEC), which was reviewing its deal disclosures, would now approve the deal.

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Digital World CEO Patrick Orlando said last week that the majority of Digital World’s shareholders are individual investors, and getting them to vote through brokers has been challenging.

Digital World needs a 65% shareholder vote for a proposal to extend its life cycle by 12 months to take effect. As of Monday evening, the number of Digital World shareholders voting in favor was far fewer than needed, the sources said.

The results of the vote will be announced at a special meeting of Digital World shareholders on Tuesday. Digital World executives don’t think they will be able to get enough shareholder support in time and have started considering other options, the sources said.

The sources requested anonymity because voting statistics have not been made public. Representatives for Digital World and TMTG did not immediately respond to requests for comment.

One option Digital World is considering is to delay the voting deadline to ultimately boost shareholder support, the sources said. If no further action is taken, the SPAC will liquidate on Thursday and return the money it raised in its September 2021 initial public offering.

If Digital World fails to get its shareholders to support a one-year extension, its management has the right to extend its life by up to six months without shareholder approval. It is unclear whether Digital World will take this option and whether it will give regulators enough time to draw a conclusion on whether to allow the transaction to proceed.

Digital World revealed that the SEC, FINRA and federal prosecutors have been investigating the TMTG deal, although the exact scope of the investigation is unclear.

Information sought by regulators includes due diligence on potential targets other than TMTG, relationships between Digital World and other entities, Digital World board meetings, policies and procedures related to the transaction, and Digital World documents on the identities of certain investors . Say.

debt ceiling

If the deal closes, TMTG will receive $293 million on hand from Digital World, plus $1 billion from a group of investors, in the form of Private Invested Public Equity (PIPE).

The PIPE program expires in September. 20 unless the transaction is completed. Investment bankers at Digital World have been reaching out to investors over the past few weeks to gauge their interest in expanding PIPE, a person familiar with the matter said.

It’s unclear how TMTG would have gotten through the storm without getting funding from Digital World. It raised $22.6 million in convertible promissory notes last year and $15.4 million in bridge financing in the first quarter of this year. The agreement with Digital World limits the amount of debt TMTG can take on until the deal closes to $50 million.

Digital World has said it believes TMTG will be “sufficiently funded” by April 2023. TMTG said last week that Truth Social was “in a healthy financial position” and would start advertising soon.

Trump started using Truth Social in April, two months after launching on Apple Inc’s (AAPL.O) App Store. He currently has more than 4 million followers — 89 million on Twitter Inc (TWTR.N ) before he was banned by thousands of his supporters for his role in the January 2021 U.S. Capitol riots a small fraction of followers.

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Reporting by Svea Herbst-Bayliss, Rhode Island; Additional reporting by Echo Wang and Krystal Hu in New York; Editing by Greg Roumeliotis and Edwina Gibbs

Our Standard: The Thomson Reuters Trust Principles.

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