September 26, 2022

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Trump's Truth Social's exclusive deal partner fails to get SPAC extension sourcing support

Trump’s Truth Social’s exclusive deal partner fails to get SPAC extension sourcing support

The Truth social network logo appears on a smartphone in front of former US President Donald Trump’s screen in this illustration taken on February 21, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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(Reuters) – Bayad’s acquisition company, which agreed to merge with Donald Trump’s social media company, failed to get enough shareholder support to extend it for a year to complete the deal, sources familiar with the matter said on Monday.

At stake is a $1.3 billion cash injection from Trump Media and Technology Group (TMTG), which operates the former US president’s Truth Social app, which it is expected to receive from Digital World Acquisition Corp. (DWAC.O)the special purpose acquisition company (SPAC) that signed a deal last October to go public with TMTG.

The deal was frozen amid civil and criminal investigations into the circumstances of the deal. Digital World had hoped that the US Securities and Exchange Commission (SEC), which is reviewing its disclosures about the deal, had now given its approval for the deal to go ahead.

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Most of Digital World’s shareholders are individual investors, and getting them to vote through their brokers has been tough, Patrick Orlando, CEO of Digital World, 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 evening, far fewer Digital World shareholders had voted for the number wanted, the sources said.

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The result of the vote is scheduled to be announced at a special meeting of Digital World shareholders on Tuesday. Digital World executives don’t believe they will be able to garner enough shareholder support in time and are starting to consider alternative options, according to the sources.

The sources requested anonymity because the vote count numbers have not been publicly announced. Representatives for Digital World and TMTG did not immediately respond to requests for comment.

One of the options that Digital World is considering is to postpone the vote deadline in an eventual effort to bolster more shareholder support, the sources said. Without further action, SPAC is set to liquidate on Thursday and return the money it raised in its initial public offering in September 2021.

If Digital World fails to try to get its shareholders to support the one-year extension, its management has the right to extend its life without shareholder approval for up to six months. It is unclear whether Digital World will pursue this option and whether it will provide enough time for regulators to reach a conclusion on whether to allow the deal to go ahead.

Digital World has revealed that the Securities and Exchange Commission, the Financial Industry Regulatory Authority and federal prosecutors are investigating the transaction with TMTG, although the exact scope of the investigation is unclear.

Among the information requested by regulators are Digital World documents about due diligence on potential targets other than TMTG, relationships between Digital World and other entities, Digital World board meetings, policies and procedures related to trading, and the identities of certain investors, Digital World said.

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debt capture

If the transaction is completed, TMTG will receive $293 million owned by Digital World in addition to $1 billion pledged from a group of investors in the form of a private equity investment (PIPE).

The tubes are set to expire on September 20 unless the deal is completed. A person familiar with the matter said that investment bankers at Digital World have been reaching out to investors in the past few weeks to gauge their interest in scaling PIPE.

It’s unclear how TMTG will handle without access to Digital World’s funding. It raised $22.6 million through convertible promissory notes last year and an additional $15.4 million through bridge financing in the first quarter of this year. The agreement with Digital World sets the indebtedness that TMTG can incur before closing the deal at $50 million.

Digital World said it believes TMTG will have “sufficient funds” through April 2023. TMTG said last week that Truth Social is “on a strong financial footing” and will begin running ads soon.

Trump started using Truth Social in April, two months after it launched on Apple Inc (AAPL.O) App Store. He currently has over 4 million followers – a fraction of the 89 million followers he has on Twitter Inc (TWTR.N) Before he was banned for his role in the riots at the US Capitol in January 2021 by thousands of his supporters.

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Additional reporting by Svia Herbst Bayless in Rhode Island; Additional reporting by Eko Wang and Crystal Ho in New York. Editing by Greg Romelutis and Edwina Gibbs

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