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Trump Loses More Investors for Truth Social Deal

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Courtesy of Gage Skidmore (Flickr CC0)

Donald Trump’s social media venture just lost a massive amount of investment. His app Truth Social has been plagued by controversies and lawsuits since its launch.

Trump Media and Technology Group is planning to merge with a blank-check company, Digital World Acquisition Corp (NASDAQ: DWAC). DWAC is a special-purpose acquisition company (SPAC). SPACs are publicly traded companies that raise funds to buy existing companies. They help private companies go public on the stock exchange and have no traditional business or stated purpose. This process is quicker than the usual route of an IPO which can take 6 months up to a year. The process has taken longer than expected for Trump Media, and this latest development threatens the deal further.

Trump Media under Billion Dollar Valuation

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Courtesy of Eric Allix Rogers (Flickr CC0)

The plan was originally for DWAC to fund Trump Media with $1.3 billion through a merger. DWAC was expected to contribute $300 million while the rest came from private investment in public equity (PIPE). The agreement contractually obligated PIPE investors to their commitments until Sept 20. They would then be allowed to exit their purchase agreements if the deal was not completed by that date.

On Friday, DWAC stated that unnamed investors sent termination notices relating to their involvement with the Trump Media deal. These partners have withdrawn their commitments worth up to $140 million, bringing the total down from $1 billion. One of the investors who pulled out is reportedly to be Sabby Management, according to Reuters. The company had originally pledged $100 million to the deal. This setback is just one of the hurdles for Trump Media. Reuters reports that more investors have not left in favor of an update on their terms with DWAC.

Trump’s appeal seems to not have transferred over to Truth Social. While on Twitter, he was one of the platform’s most popular users, garnering 80 million followers. When he got banned from the site after the Jan. 6, 2021, Capitol insurrection, he founded Truth Social. Today, he has less than a tenth of his former Twitter following on his app, sitting at 4.1 million. Along with being banned from the Google play store, these signs were enough for some investors to lose faith in their investment. Investors have been quoted to have left the deal due to the Trump Media’s many legal obstacles. The process has taken longer due to interventions from government agencies.

Roadblocks Faced by Truth Social

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Courtesy of Gage Skidmore (Flickr CC0)

Both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have launched probes into Digital World and Trump Media. The SEC is investigating whether the two companies were in violation of securities law when having alleged discussions before the merger. They allegedly were in talks before DWAC went public last year. Investigations began in June due to the SEC not being informed of these talks. The Southern District of New York has issued subpoenas to members at Digital World.

Trump is also under investigation by New York’s attorney general for civil allegations of fraud. He also faces criminal punishments for removing sensitive documents from the white house. His attempts to influence the outcome of the 2020 presidential election and involvement in the Jan. 6 Capitol insurrection are also being questioned.

Next Steps

Trump has labeled the investigations as politically motivated “witch hunts.” The company has requested more time from its investors given the probing from the government delaying the deal from going through. It failed to get a one-year extension approved by Sept 6 and gave itself until Oct 10 to get enough votes. CEO Patrick Orlando put up $2.8 million from his company Arc Global Investments II to help push the deadline for the deal to December.

So far this year, DWAC’s stock has fallen by 68 percent to $16.33. Shares are down from their peak of $97 in March.

Written by Chiagozie Onyewuchi

Sources:

CBS News: Investors yank $138 million from company planning merger with Trump’s Truth Social; by Aimee Picchi
Business Insider: Investors pull almost $140 million from the company planning to merge with Donald Trump’s Truth Social; by Jyoti Mann
Investopedia: Special Purpose Acquisition Company (SPAC) Explained: Examples and Risks; by Julie Young
CNBC: Trump-linked SPAC changes address to UPS Store as investors pull more than $130 million; by Jack Stebbins

Featured, Top, and Second Inset Image Courtesy of Gage Skidmore’s Flickr Page – Creative Commons License
First Inset Image Courtesy of Eric Allix Rogers’s Flickr Page – Creative Commons License

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