The blank-check acquisition firm that decided to merge with Donald Trump’s social media company was unable to obtain enough shareholder support for a one-year extension to finalize the deal, people with knowledge of the matter said on Monday.
At stake is a $1.3 billion cash infusion that Trump Media & Technology Group (TMTG), which manages the former U.S. president’s Truth Social app, is set to receive from Digital World Acquisition Corp (DWAC.O), the special purpose acquisition company (SPAC) that signed an agreement last October to take TMTG public.
The transaction has been incomplete amid criminal and civil probes into the circumstances around the agreement. Digital World had been expecting that the U.S. Securities and Exchange Commission (SEC), which is inspecting its disclosures on the deal, would have given approval by now for the transaction to continue.
The majority of Digital World’s shareholders are individual investors and persuading them to vote through their brokers has been challenging, Digital World Chief Executive Patrick Orlando said last week.
Digital World requires 65% of its shareholders to vote in support of the proposal to extend its life by 12 months for the move to become successful. By Monday evening, far fewer Digital World shareholders than those needed had voted in support, the sources said.
The outcome of the vote is scheduled to be declared at a special meeting of Digital World shareholders on Tuesday. Digital World executives do not think they will be able to mobilize enough shareholder support in time and have begun to look at alternative options, according to the sources.
The sources asked not to be named because the vote tally figures have not been publicly declared. Representatives for Trump Media & Technology Group and Digital World did not promptly respond to requests for comment.
One option being looked at by Digital World is to delay the voting deadline in a final bid to raise more shareholder support, the sources said. Without further action, the SPAC is ready to liquidate on Thursday and give back the money collected in its September 2021 initial public offering.
If Digital World failed in its bid to get its shareholders to support the one-year extension, its management has the power to extend its life without shareholder blessing by up to six months. It is unclear whether Digital World will consider this option and if it would give enough time for regulators to arrive at a conclusion on whether to approve the deal to proceed.
Digital World has revealed that the Financial Industry Regulatory Authority, the SEC, and federal prosecutors have been evaluating the deal with TMTG, though the exact scope of the investigations is unclear.
Among the information asked for by regulators are policies and procedures relating to trading, relationships between Digital World and other entities, documents on due diligence of potential targets other than TMTG, meetings of Digital World’s board, and the identities of certain investors, Digital World has said.
Indebtedness Capped Trump Media & Technology Group
If this deal was finalized, Trump Media & Technology Group would get $293 million that Digital World has on hand plus $1 billion pledged from a group of investors in the form of a private investment in public equity (PIPE).
The PIPE is expected to expire on Sept. 20 unless the deal is finalized. Investment bankers for Digital World have been contacting investors in the last few weeks to weigh their interest in extending the PIPE, a person with knowledge of the matter said.
Buy Bitcoin NowIt is unclear how TMTG is managing without having access to Digital World’s funding. It secured $22.6 million through convertible promissory notes in 2021 and an additional $15.4 million through bridge financing in the first quarter of 2022. The deal with Digital Worlds caps the indebtedness that TMTG can take on prior to the deal closing at $50 million.
Digital World said it hopes TMTG will have “sufficient funds” until April next year. TMTG said last week that Truth Social is “on strong financial footing” and would start running advertisements soon.
Trump began using Truth Social in April, two months after it was rolled out on Apple Inc’s (AAPL.O) app store. He currently has over 4 million followers – a fraction of the 89 million he had on Twitter Inc (TWTR.N) before he was permanently suspended over his role in the January 2021 U.S. Capitol riots by thousands of his supporters.
