Investors greenlight Trump's $5.7 billion social media deal
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[March 23, 2024] By
Helen Coster, Svea Herbst-Bayliss
(Reuters) -Former U.S. President Donald Trump came a step closer on
Friday to reaping a major windfall from his social media firm after
investors in a blank-check acquisition company approved a merger
currently worth about $5.7 billion.
The deal values Trump's majority stake in the company that holds his app
Truth Social at about $3.3 billion. The windfall could prove vital as
Trump grapples with the financial fallout of a string of legal cases
against him, including a $454 million judgment in a civil fraud case in
New York.
Shareholders of Digital World Acquisition Corp (DWAC), the special
purpose acquisition company (SPAC) that plans to list Trump Media &
Technology Group on the stock market through a merger, voted in favor of
the deal on Friday.
While the next step would be for the deal to be completed next week, its
future is fraught with uncertainty. Digital World's former CEO Patrick
Orlando and former Trump business associates Andy Litinsky and Wes Moss
have separately sued to ask for more shares for their previous work on
the deal.
It is unclear how and when these cases will be resolved. Even if the
deal gets completed next week, Trump will not be allowed to sell any of
his shares in the combined company for six months or borrow against
them, based on terms he previously agreed.
The deal is also poised to deliver a vital $300 million cash infusion to
Truth Social parent Trump Media & Technology Group (TMTG). The social
media company lost $10.6 million from its operations in the first nine
months of 2023 on revenue of $3.4 million. It has been funding itself by
borrowing $40.7 million through convertible promissory notes that can be
paid back in stock.
Based on how Digital World's shares have recently traded, TMTG would be
valued at as much as $5.7 billion following its merger with Digital
World on an undiluted basis and as much as $8.6 billion on fully diluted
basis that takes into account warrants to be exercised and earnout
shares to be issued.
In a rally fueled by Trump supporters and other retail investors,
Digital World's stock has nearly quadrupled since its tie-up with TMTG
was announced in 2021.
Buying the stock "will help President Trump get his bond, buying 4
shares by all will benefit all," Truth Social user @racinrob wrote in a
post this week.
Digital World's shares tumbled over 10% on Friday following the deal's
shareholder approval.
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Republican presidential candidate and former U.S. President Donald
Trump gestures during a campaign rally at the Forum River Center in
Rome, Georgia, U.S. March 9, 2024. REUTERS/Alyssa Pointer/File Photo
An $8.6 billion fully diluted valuation for the combined company
would be a little less than half that of Elon Musk's much more
popular social media company X.
In February, Digital World said Truth Social has so far had 8.9
million sign-ups. X, by comparison, has more than half a billion
monthly users, according to Musk.
Trump has 6.7 million followers on Truth Social, compared to the
more than 88 million followers he had on X when the platform
permanently suspended him, and the 87.4 million followers he
currently has on that platform.
DEAL HURDLES
Trump, who is running to be U.S. president again, will own between
58.1% and 69.4% of the combined company, depending on the extent to
which investors back the deal.
TMTG was launched with the help of Litinsky and Moss - two former
contestants on Trump's reality TV show “The Apprentice” - as a way
for Trump to connect with his supporters after Facebook, Twitter and
YouTube removed him following the Jan. 6, 2021 attack on the U.S.
Capitol.
Since 2021, the deal has faced setbacks and delays. Digital World
has been a target of investigations by the U.S. Department of
Justice and the Securities and Exchange Commission (SEC), ousted
Orlando as its chief executive, and shook up its board.
In July, Digital World reached an $18-million settlement with the
SEC, which said Digital World misled investors by failing to
disclose in filings that it had formulated a plan to acquire TMTG
and was pursuing the acquisition before Digital World’s initial
public offering.
In August, Trump posted on X his mug shot from his booking at Fulton
County Jail in Georgia. He has not posted on X since, using Truth
Social as his primary platform to reach voters.
(Reporting by Helen Coster in New York and Svea Herbst-Bayliss in
Rhode Island; Additional reporting by Noel Randewich in Oakland,
California;Editing by Greg Roumeliotis, Nick Zieminski and Josie
Kao)
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