The blank-check acquisition firm that agreed to merge with former U.S. President Donald Trump’s social media company on Thursday fell short of getting enough shareholder votes to extend its life by 12 months and will try again in October.
At stake is a $1.3 billion cash infusion that Trump Media & Technology Group (TMTG), which operates the Truth Social app, stands to receive from Digital World Acquisition Corp, the special purpose acquisition company (SPAC) that inked a deal in October to take TMTG public.
The transaction has been on ice amid civil and criminal probes into the circumstances around the deal. Digital World had been hoping that the U.S. Securities and Exchange Commission (SEC), which is reviewing its disclosures on the deal, would have given its blessing by now.
Digital World had already pushed back the deadline for its shareholders to vote on the 12-month extension from Tuesday to Thursday. It needs 65% of its shareholders to vote in favor of the proposal but it fell short, Reuters reported on Monday.
Most Digital World shareholders are individuals and getting them to vote through their brokers has been challenging, Digital World Chief Executive Patrick Orlando said last week.
However in recent days retail investors, energized by an admiration for Trump and the power of social media platforms, have rallied to vote and pushed up the percentage of favorable votes cast dramatically, sources familiar with the voting said.
By Thursday roughly 40% of shareholders had voted in favor of the deal, one of the people said. Orlando said the vote deadline had now been pushed back to Oct. 10.
Digital World was set to liquidate on Thursday and return the money raised in its September 2021 initial public offering to shareholders unless action was taken. However, the SPAC said on Tuesday its managers would lend it $2.875 million as part of the arrangement to unilaterally extend its life to Dec. 8 and avoid liquidation. Digital World representatives did not respond to a request for comment on Thursday on whether that payment was made.
Trump appeared to manage expectations for the SPAC deal with a post last week on Truth Social: “I don’t need financing, ‘I’m really rich!’ Private company anyone???”
Digital World has disclosed that the SEC, the Financial Industry Regulatory Authority and federal prosecutors have been investigating the deal with TMTG, though the exact scope of the probes is unclear.
The 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, policies and procedures relating to trading, and the identities of certain investors, Digital World has said.
PIPE AT RISK
If the deal is completed, TMTG would receive $293 million that Digital World has on hand plus $1 billion committed from a group of investors in the form of a private investment in public equity (PIPE).
The PIPE is scheduled to expire on Sept. 20 unless the deal is completed. Investment bankers for Digital World have been reaching out to investors in the last few weeks to gauge their interest in extending the PIPE, a person familiar with the matter said.
It is unclear how TMTG is getting by without access to Digital World’s funding. 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 indebtedness that TMTG can assume prior to the deal closing at $50 million.
Digital World has said it believes TMTG will have “sufficient funds” until April 2023. TMTG said last week that Truth Social is “on strong financial footing” and would begin running advertisements soon.
Trump started using Truth Social in April, two months after it launched on Apple Inc’s app store. He has more than 4 million followers – a fraction of the 89 million he had on Twitter Inc before he was banned over his role in the January 2021 U.S. Capitol riots by thousands of his supporters. (Reporting by Svea Herbst-Bayliss; Editing by Chizu Nomiyama, Chris Reese, Aurora Ellis and Richard Chang)