Stefani Reynolds/AFP via Getty Images
Former President Trump’s social media company has another potentially big problem: It’s struggling to complete a stock market listing that would raise the more than $1 billion it needs to keep operating.
Trump Media and Technology Group, which includes the Truth Social app it launched earlier this year, had planned to list on the Nasdaq stock exchange through a complicated process known as the SPAC merger.
But that deal is undergoing legal and regulatory review, and the Securities and Exchange Commission has yet to report its approval.
SPAC, or the organization that will help with the stock listing, is called Digital World Acquisition Corp. and it now needs an extension for listing, it said on Thursday. The company struggled to gain the support of enough shareholders to move the deadline.
Here are more details on what is happening.
What does all this mean?
Instead of pursuing a traditional IPO, the Trump Media and Technology Group decided to merge with an already Nasdaq-listed blank check company.
These types of transactions have become popular in recent years when interest rates were close to zero. In effect, they give private companies a shortcut to going public – requiring less transparency than traditional IPOs.
The Trump Company (TMTG) and DWAC announced their merger last October, but it needs regulatory and shareholder approval.
Since then, however, both companies have suffered several setbacks.
In June, a grand jury in New York issued a subpoena on the TMTG and, according to the DWAC, “certain current and former TMTG personnel have also recently received individual grand jury subpoenas.”
Additionally, DWAC and some of its board members have been subpoenaed by the SEC, which is investigating SPAC’s communications and due diligence.
In a filing, SPAC said “these subpoenas and underlying investigations by the SEC and the U.S. Department of Justice … may delay, impede or prevent the completion” of the deal.
Facing a deadline to finalize the deal, DWAC CEO Patrick Orlando asked the company’s shareholders – many of whom are individual investors – to approve a one-year extension.
But the company was unable to garner enough support from investors, and a special meeting originally scheduled for Tuesday was quickly adjourned, and two subsequent efforts to reconvene led to adjournments all together. just as fast without announcing the vote count.
On Thursday afternoon, Orlando announced that the meeting would resume at noon on October 10.
“We are working diligently to register all the votes that continue to come in from our shareholders and are adjourning this meeting to give shareholders – whether small, medium or large – more time to vote,” he said. .
If enough shareholders don’t agree to the extension, the deal’s sponsors say they will pump more money into the shell company’s coffers, allowing them to extend the deadline for another three months. If the deal is not finalized by then, sponsors can fund an additional three-month extension.
What brought us here?
When former President Trump founded the Trump Media & Technology Group nearly a year ago, he recognized it would be “difficult and expensive to build a new platform” that could compete with Facebook and Twitter.
“It should be extremely well funded,” he said.
Digital World Acquisition Corp. has $293 million in cash, and completion of the SPAC merger would provide the company with an additional $1 billion in funding from private investors.
In the days following the announcement, investors signaled their support for the combination. Last October, DWAC’s stock price jumped to $175 per share.
But nearly a year has passed, and the SEC has not approved the deal, nor have DWAC shareholders.
Shares of DWAC fell precipitously after both companies admitted they were under legal and regulatory scrutiny. Today, it trades at around $23 per share.
The launch of the Truth Social app has been delayed and it is still not available on the Android operating system.
What happens next?
Chris Delmas/AFP via Getty Images
The SPAC mergers must be completed within a specific time frame and at the moment it seems difficult for Trump’s social media company to complete the merger.
If the deal is not approved by the deadline and there is no further extension, DWAC would go ahead and President Trump’s media company would have to find a new way to raise money.
In a recent article on Truth Social, the former president seemed to downplay the difficulty of doing so.
“I don’t need funding,” he wrote. “Private company anyone???”
And as for those pending legal issues?
“Theoretically, they shouldn’t need to be fully resolved for this deal to happen,” says Michael Ohlrogge, associate professor of law at New York University. “The SEC’s greatest interest is to ensure that risks are fully and clearly disclosed to shareholders.”
DWAC urged the SEC to complete its investigation, and in recent interviews Orlando said the company was cooperating with regulators.
“We had some delays,” he said. “It’s slower than expected, but we fight every day, work every day to get the ball going.”