Shares of Trump-linked Digital World Acquisition Corp are now around $16 after hitting $97 earlier this year

Shares of Trump-linked Digital World Acquisition Corp are now around $16 after hitting $97 earlier this year

The Truth social network logo is seen on a smartphone in front of a screen of former US President Donald Trump in this illustration taken February 21, 2022.

Given Ruvic | Reuters

Shares of Digital World Acquisition Corp. fell this week as the company missed a key deadline to retain about $1 billion in funding for its proposed merger with former President Donald Trump’s media company.

DWAC, which is a Special Purpose Acquisition Company, or SPAC, was designed to be the vessel that will take Trump Media and Technology Group public. But the deal with Trump’s firm has come up against several financial and legal hurdles.

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At its 2022 high, DWAC stock was trading at $97. Now its stock price is hovering around $16 as markets slip, appetite for SPACs dries up and Trump faces mounting legal peril. The stock fell about 3% on Friday.

DWAC secured $1 billion in funding from private equity investors, also known as PIPE, which would fund Trump Media post-merger. However, Tuesday marked the expiration of those investors’ contractual obligations to the deal, allowing them to withdraw their funding.

These investors receive convertible preferred stock, which can be transferred into common stock at a discount. By converting and selling these shares, PIPE investors also have the power to significantly dilute the holdings of other investors, including former President Trump.

Trump Media, DWAC and PIPE investors did not immediately return requests for comment.

The loss of the $1 billion in funding is far from the only misfortune facing this deal and its parties involved. The merger is being investigated by the Securities and Exchange Commission for possible securities violations involving talks of a deal before the merger was announced. The Justice Department is also investigating the deal.

Moreover, Trump himself is facing growing legal pressures. A lawsuit alleging widespread fraud by New York Attorney General Letitia James is just another in an already large pile of lawsuits against the former president. The former president is simultaneously under investigation for the removal of sensitive White House documents, his role in the Jan. 6, 2021 Capitol riot, and his efforts to overturn the 2020 election results.

His Truth Social app, which was founded after the ex-president was banned from Twitter after the events of January 6, is currently banned from the Google Play store for violating Google’s content moderation policies. Google and Truth Social said this week that they are still working on a solution.

If the merger goes through, it would provide about $300 million for Trump’s media company without the $1 billion in PIPE investments. But even getting that $300 million will require jumping over several other hurdles.

DWAC needs to buy more time for shareholders to approve delaying the merger for up to a year. DWAC CEO Patrick Orlando made a $2.8 million deposit to extend the merger deadline until December. A shareholder vote is required for the one-year extension the company is aiming for, but DWAC has been unable to rally its many retail investors to approve the extension so far. The next shareholders’ meeting is scheduled for October 10.

Amid the mounting pressure, Trump Media released a statement saying it would pursue legal action against the SEC for improperly obstructing the deal, blaming the Securities Exchange Commission for “arming and politicizing”.

“This inexcusable stonewalling, which directly contradicts the SEC’s stated mission, hurts investors and many others who are just following the rules and trying to build a successful business,” Trump Media said.

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