In this illustration taken on February 21, 2022, the logo of the social network of Truth appears on a smartphone in front of the display of former U.S. President Donald Trump.
Dado Ruvic | Reuters
Shares of Digital World Acquisition Corp. fell this week as the company missed a key deadline to hold about $1 billion in financing for a merger with former President Donald Trump’s media company.
DWAC, a special purpose acquisition company (SPAC), has been set up as a vessel to take Trump Media and Technology Group public. But the deal with the Trump Corporation hit several financial and legal hurdles.
At its peak in 2022, DWAC shares were trading at $97. Now, with the market sliding, interest in SPACs drying up and Trump facing growing legal risks, the stock is trading around $16. The stock fell about 3% on Friday.
DWAC has secured $1 billion in public equity financing, also known as PIPE, from private investors, which, when combined, will fund Trump Media. However, Tuesday marked the expiration of those investors’ contractual obligations to the deal, allowing them to withdraw.
These investors receive convertible preferred stock that can be converted into common stock at a discount. By converting and selling the shares, PIPE investors also have the right to substantially dilute the holdings of other investors, including former President Trump.
Trump Media, DWAC and PIPE investors did not immediately respond to requests for comment.
A $1 billion loss in financing is far from the only dilemma facing the deal and its parties. The U.S. Securities and Exchange Commission is investigating the merger, which may involve securities violations in discussions about the transaction prior to the merger announcement. The Justice Department is also investigating the deal.
In addition, Trump himself is facing increasing legal pressure. The lawsuit accusing New York Attorney General Letitia James of widespread fraud is just another in a slew of legal battles against the former president. The former president is also under investigation for removing sensitive documents from the White House, his role in the Jan. 6, 2021, Capitol riots and his push to overturn the 2020 election results.
His Truth Social app, created after the former president was banned from Twitter following the Jan. 6 incident, is currently banned from the Google Play Store for violating Google’s content moderation policy. Google and Truth Social said this week that they are still working on a solution.
If the merger goes through, it would give Trump’s media company about $300 million without the need for a $1 billion PIPE investment. But even getting that $300 million will require more hurdles to overcome.
DWAC needs to buy more time for shareholder approval to delay the merger by a year. DWAC CEO Patrick Orlando paid a $2.8 million deposit to extend the merger deadline to December. The company is targeting a one-year extension, which requires a shareholder vote, but so far, DWAC has been unable to convene its many retail investors to approve the extension. The next general meeting of shareholders is scheduled for October 10.
Amid these mounting pressures, Trump Media issued a statement saying it would take legal action against the SEC for excessively blocking the deal, blaming the SEC’s “weaponization” and politicization”.
“This inexcusable obstruction goes directly against the SEC’s stated mission and is harming investors and many others who are simply playing by the rules and trying to expand successful businesses,” Trump Media said.