Trump-linked SPAC faces new pressure from investors as merger hangs in the balance

The social media app will be developed by Trump Media and Technology Group (TMTG).

Rafael Henrique | LightRocket | Getty Images

Digital World Acquisition Corp., the company planning to take Trump Media and Technology Group public, is facing investor concerns about a potential failed merger with former President Donald Trump’s company.

The Financial Times reported Tuesday that DWAC Chief Executive Patrick Orlando is negotiating with investors who said they would back the company through a private investment in public equity, or PIPE, deal.

The $1 billion deal was set to expire Tuesday. If it falls apart, it would mean a lot less money for Trump Media, even if it did end up going public through a merger with DWAC. Orlando was pushing for a 10-day extension, according to the newspaper.

The PIPE investors are hoping to bring down the minimum conversion price for their preferred stock from $10 to as low as $2, the FT reported, citing a person involved in the talks. That would boost their potential profit on the deal, even in the worst case scenario, as it would give the investors more shares and dilute other shareholders’ stakes – including Trump’s.

The negotiation is an attempt to shift risk to DWAC and Trump Media, which owns Truth Social. DWAC shares are currently trading at around $20, down significantly from $97 highs earlier this year, but still above the $10 liquidation price.

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“Trump wants to make sure he doesn’t face a lot of dilution,” one person involved told the FT. “Optically, he wants to avoid a $2 floor. It looks weak and he doesn’t want to look weak.”

Representatives for DWAC and Trump Media didn’t immediately respond to a request for comment.

DWAC is a special purpose acquisition company, or SPAC, a publicly traded entity that takes pre-existing companies public. Orlando extended a deadline to merge with Trump Media beyond its early September date with a $2.8 million infusion from his company, the SPAC sponsor, ARC Global Investments II. DWAC is pushing shareholders to approve a yearlong extension of the deadline. The next shareholder meeting is set for next month.

If the merger deadline is not extended, DWAC has warned that the company may have to liquidate, returning shareholders around $10 per share, the initial share price for a SPAC.

Trump founded Trump Media and Technology Group and its platform Truth Social after he was banned from Twitter following the Jan. 6, 2021, Capitol riot. The former president is facing multiple investigations relating to the attempt to overturn the 2020 presidential election and the removal of sensitive documents from the White House. Trump Media’s planned merger with DWAC is the subject of federal probes into potential securities violations.

After a boom in 2020 and 2021, SPACs have largely dried up. “SPAC King” Chamath Palihapitiya let two of his blank-check companies dissolve Tuesday as their deadlines passed without extension.

Orlando, DWAC’s CEO, saw one of his SPACs liquidate in 2021. He has until December to prevent Digital World Acquisition Corp. from meeting the same fate.

Source: CNBC