Exclusive: Deal Partner for Trump’s Truth Social Doesn’t Get Support for SPAC Extension

The Truth social network logo can be seen on a smartphone in front of a display of former US President Donald Trump in this image, taken Feb. 21, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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Sept. 5 (Reuters) – The blank-check takeover firm that agreed to merge with Donald Trump’s social media company failed to gain enough shareholder support for a one-year extension to complete the deal, people confessing said. were with the case Monday.

At stake is a $1.3 billion cash injection that Trump Media & Technology Group (TMTG), which operates the former US president’s Truth Social app, will receive from Digital World Acquisition Corp (DWAC.O), the dedicated acquisition company (SPAC) that signed a deal in October last year to list TMTG on the stock exchange.

The transaction has been put on ice 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 have given its blessing by now to allow the transaction to go through.

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Most of Digital World’s shareholders are individual investors, and getting them to vote through their brokers has been a challenge, said Patrick Orlando, Chief Executive of Digital World, last week.

Digital World needs 65% of its shareholders to vote in favor of the proposal to extend the term by 12 months for the move to take effect. On Monday night, far fewer Digital World shareholders than necessary voted in favour, the sources said.

Voting results will be announced on Tuesday at a special meeting of Digital World shareholders. Digital World directors don’t think they can get enough support from shareholders in time and have started considering alternative options, according to the sources.

The sources have asked for anonymity because the voting figures have not been made public. Representatives from Digital World and TMTG did not immediately respond to requests for comment.

One option being considered by Digital World is to postpone the voting deadline in a last-ditch effort to drive more shareholder support, the sources said. Without further action, the SPAC will liquidate on Thursday and return the money it raised from its first public offering in September 2021.

Should Digital World fail to get its shareholders to support the one-year extension, management has the right to extend the life for up to six months without shareholder approval. It’s unclear whether Digital World will pursue this option and whether it would provide enough time for regulators to reach a conclusion on whether or not the deal will go through.

Digital World has disclosed 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.

Among the information sought by regulators are Digital World documents on due diligence of potential targets other than TMTG, relationships between Digital World and other entities, Digital World board meetings, trade policies and procedures and the identity from certain investors, Digital World has said.

DEBTS DISPLAYED

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

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

It’s unclear how TMTG is doing without access to Digital World’s funding. Last year, it raised $22.6 million through convertible notes and another $15.4 million through bridge financing in the first quarter of this year. The agreement with Digital World caps the debt TMTG can assume prior to the closing of the deal at $50 million.

Digital World has said it believes TMTG will have “enough money” until April 2023. TMTG said last week that Truth Social is “on a strong financial footing” and will begin running ads soon.

Trump started using Truth Social in April, two months after it was launched on Apple Inc’s (AAPL.O) app store. He currently has more than 4 million followers – a fraction of the 89 million he had on Twitter Inc (TWTR.N) before being banned by thousands of his supporters for his role in the January 2021 Capitol riot.

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

Our Standards: The Thomson Reuters Trust Principles.

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