Trump SPAC faces new investor pressure as Digital World merger stalls

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

Raphael Henrique | light flare | Getty Images

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

The Financial Times reported on Tuesday that DWAC chief executive Patrick Orlando was negotiating with investors who said they would back the company through private equity investment, or PIPE.

The billion-dollar deal was due to expire on Tuesday. If it flopped, it would mean a lot less money for Trump Media, even if it eventually went public through a merger with DWAC. Orlando was pushing for a 10-day extension, according to the newspaper.

PIPE investors hope to lower the minimum conversion price of their preferred shares from $10 to just $2, the FT reported, citing a person involved in the talks. This would increase their potential profit on the transaction, even in a worst-case scenario, as it would give investors more shares and dilute the stakes of other shareholders. — including Trump’s.

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

“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 bottom. He looks weak and he doesn’t want to look weak.”

Representatives for DWAC and Trump Media did not 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 the merger deadline with Trump Media beyond its September start date with a $2.8 million injection from its company, SPAC sponsor, ARC Global Investments II. DWAC is pushing shareholders to approve a one-year extension of the deadline. The next general meeting is scheduled for next month.

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

Trump founded Trump Media and Technology Group and his Truth Social platform after he was banned from Twitter following the Jan. 6, 2021 Capitol riot. The former president is facing multiple investigations over the attempted cancellation of the 2020 presidential election and the removal of sensitive White House documents. Trump Media’s planned merger with DWAC is the subject of federal investigations into possible 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 on Tuesday as their deadlines passed without an extension.

Orlando, CEO of DWAC, saw one of his SPACs liquidated in 2021. He has until December to stop Digital World Acquisition Corp. to suffer the same fate.

Lance B. Holton