Trump’s media deal takes a hit as PSPC fails to secure extension

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

Sep 6 (Reuters) – The blank check acquisition firm that agreed to merge with former U.S. President Donald Trump’s social media company failed on Tuesday to garner enough shareholder support for an extension one year to conclude the agreement.

At stake is a $1.3 billion cash injection that Trump Media & Technology Group (TMTG), which operates the Truth Social app, is expected to receive from Digital World Acquisition Corp. (DWAC.O)the Special Purpose Acquisition Company (SPAC) which signed an agreement in October to take TMTG public.

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

Digital World chief executive Patrick Orlando said at a special meeting of its shareholders on Tuesday that he would push back the deadline for voting on the 12-month life extension of SPAC to noon Thursday.

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

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

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

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

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

PSPC managers have the right to unilaterally extend the life of PSPC once again, until March. It’s unclear whether that would give regulators enough time to come to a conclusion on whether to allow the deal to continue.

A spokesperson for TMTG said the company will continue to cooperate with all stakeholders on the merger and hopes “SEC staff will expeditiously conclude its review without political interference.”

A spokesperson for the SEC did not immediately respond to a request for comment.

Trump appeared to be managing expectations for the deal with a post over the weekend on Truth Social: “I don’t need the funding, ‘I’m really rich!’ Private company anyone???”

Digital World revealed that the SEC, the Financial Industry Regulatory Authority and federal prosecutors are 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, related policies and procedures to trading and the identity of certain investors, Digital World said.

HOSE AT RISK

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

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

It’s unclear how TMTG is doing without access to funding from Digital World. 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 caps the amount of debt TMTG can assume before the deal closes at $50 million.

Digital World said it believed TMTG would have “sufficient funds” through April 2023. TMTG said last week that Truth Social was “on solid financial footing” and would soon begin serving ads.

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 had on Twitter Inc. (TWTR.N) before being banned for his role in the January 2021 US Capitol riots by thousands of his supporters.

Reporting by Echo Wang and Helen Coster in New York; Editing by Richard Chang and Jonathan Oatis

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