By Svea Herbst-Bayliss
(Reuters) – The blank check buyout firm that agreed to merge with Donald Trump’s social media company failed to secure enough shareholder support for a one-year extension to complete the deal, people familiar with the matter said on Monday.
At stake is a $1.3 billion cash infusion that Trump Media & Technology Group (TMTG), which runs the former US president’s Truth Social app, is set to receive from Digital World Acquisition Corp, the special purpose acquisition company (SPAC ) who signed an agreement recently. October to release TMTG.
The transaction has been 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 have given its blessing by now for the transaction to go ahead.
Most of Digital World’s shareholders are individual investors, and getting them to vote through their brokers has been a challenge, Digital World Chief Executive Patrick Orlando said last week.
Digital World needs 65% of its shareholders to vote in favor of the proposal to extend its life by 12 months for the move to take effect. By Monday afternoon, far fewer Digital World shareholders than required had voted in favor, the sources said.
The result of the vote is to be announced at a special meeting of Digital World shareholders on Tuesday. Digital World executives do not believe they will be able to muster enough shareholder support in time and have begun looking at alternatives, the sources said.
The sources asked to remain anonymous because the vote numbers have not been made public. Representatives for Digital World and TMTG did not immediately respond to requests for comment.
One option Digital World is considering is to delay the voting deadline in a final bid to shore up shareholder support, the sources said. Without further action, the SPAC is set to liquidate on Thursday and return the money it raised in its September 2021 initial public offering.
If Digital World fails to get its shareholders to support the one-year extension, its management has the right to extend its life without shareholder approval by up to six months. It is unclear whether Digital World would pursue that option and whether it would give regulators enough time to reach a conclusion on whether to allow the deal to go ahead.
Digital World revealed 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 regulators are seeking are Digital World’s due diligence documents on potential targets outside of TMTG, relationships between Digital World and other entities, Digital World’s board meetings, policies and procedures related to transactions and the identity of some investors, Digital World has said.
THE DEBT WAS REMOVED
If the deal goes through, TMTG would receive $293 million available from Digital World plus $1 billion committed by a group of investors in the form of a private investment in public equity (PIPE).
The PIPE is scheduled to expire on September 20 unless the deal is completed. Investment bankers for Digital World have been reaching out to investors in recent weeks to gauge their interest in expanding PIPE, a person familiar with the matter said.
It’s unclear how TMTG is managing without access to Digital World’s funding. It raised $22.6 million through convertible notes last year and an additional $15.4 million through bridge financing in the first quarter of this year. The agreement with Digital World limits the debt that TMTG can take on before the deal closes to $50 million.
Digital World said it believes TMTG will have “sufficient funds” until April 2023. TMTG said last week that Truth Social “is on a strong financial footing” and will soon start serving ads.
Trump began using Truth Social in April, two months after it was released on Apple Inc’s app store. He currently has more than 4 million followers – a fraction of the 89 million he had on Twitter Inc before he was banned for his role in the January 2021 US Capitol riots by thousands of his supporters.
(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)