In this image taken on February 21, 2022, the Pravda social media logo is visible on a smartphone in front of former US President Donald Trump’s display.
Dado Ruvic | Reuters
Shares of Digital World Acquisition Corp. fell this week as the company missed a key deadline to withhold about $1 billion in funding for a proposed merger with former President Donald Trump’s media company.
DWAC, which is a Special Purpose Acquisition Company, or SPAC, is to become the Trump Media and Technology Group’s public offering vessel. But the deal with Trump’s firm ran into several financial and legal hurdles.
At its 2022 peak, DWAC stock was trading at $97. Now, his share price is around $16 as markets tumble, appetite for SPAC dries up, and Trump faces growing legal danger. Shares fell about 3% on Friday.
DWAC has received $1 billion in funding from private equity investors, also known as PIPE, which will fund Trump Media after the merger. However, the contractual obligations of these investors on the deal expired on Tuesday, allowing them to withdraw their funding.
These investors are issued convertible preferred shares, which can be converted into common shares at a discount. By converting and selling these shares, PIPE investors can also significantly dilute the holdings of other investors, including former President Trump.
Trump Media, DWAC, and PIPE investors did not immediately respond to a request for comment.
The loss of $1 billion in funding is far from the only grief this deal and its participants have faced. The merger is being investigated by the Securities and Exchange Commission for possible violations of securities rules related to discussing the transaction prior to the merger announcement. The Justice Department is also investigating the deal.
In addition, Trump himself is facing growing legal pressure. The massive fraud lawsuit filed by New York Attorney General Letitia James is just one more in an already significant pile of lawsuits against the former president. The former president is simultaneously under investigation for seizing confidential documents from the White House, his role in the January 6, 2021 Capitol riots, and his push to reverse the 2020 election results.
His Truth Social app, which was founded after the ex-president was banned from Twitter following the January 6 events, is currently unavailable on the Google Play store for violating Google’s content moderation policy. This week, Google and Truth Social said they are still working on a solution.
If the merger goes through, it would net Trump’s media firm about $300 million without PIPE’s $1 billion investment. But even to get that $300 million, there are a few more hurdles to overcome.
DWAC needs to buy more time to convince shareholders to approve a delay of up to a year for the merger. DWAC CEO Patrick Orlando made a $2.8 million deposit to extend the merger deadline until December. The one-year extension the company is seeking requires a shareholder vote, but DWAC has so far been unable to rally its many retail investors to approve the extension. The next meeting of shareholders is scheduled for October 10.
Amid growing pressure, Trump Media issued a statement saying it would sue the SEC for wrongfully obstructing the deal, accusing the SEC of “arming and politicizing” the deal.
“This is an unforgivable obstacle that is in direct conflict with the SEC’s stated mission, hurting investors and many others who are simply following the rules and trying to expand successful businesses,” Trump Media said.