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Digital World (NASDAQ: DWAC), the Special Purpose Acquisition Company (SPAC) that is slated to take the parent of the Truth Social app – Trump Media and Technology Group (TMTG) – public in a reverse merger deal, continues to pay the price for not adhering to its contract timelines, bogged down as it is by a number of federal investigations.
Digital World raised supplemental PIPE investments worth $1 billion back in 2022. These investments were supposed to bolster Truth Social’s finances after the consummation of the merger agreement between Trump Media and Technology Group and Digital World. That consummation, however, has yet to materialize, given the complications introduced by a slew of federal investigations against DWAC.
While PIPE investments worth $467 million had already fled, Digital World intimated in October 2023 that the remaining investments worth around $533 million were also at risk.
Today, as per a pertinent filing with the SEC, Digital World has announced that its Securities Purchase Agreements (SPAs) with the remaining PIPE investors have been “terminated” following the refusal of these investors to entertain any extension or waiver vis-a-vis the contractually mandated closing date:
“As the remaining PIPE Investors were not willing to waive the Effective Registration Closing Condition, on January 10, 2024, the agreement was terminated in full, resulting in the cancellation of the remaining subscription amount of $530,500,000.”
The SPAC continues to retain access to around $293 million in proceeds that it raised as part of its IPO.
Digital World faces a number of federal investigations related to inappropriate disclosures of the events leading up to the finalization of its merger agreement with Trump Media and Technology Group. It was only recently that Digital World reached a settlement with the SEC for misleading investors by failing to disclose a number of merger-related preliminary discussions with TMTG as well as other investors in the spring and summer of 2021.
Back in the fall, the proposed merger between Digital World and Trump Media and Technology Group appeared increasingly shaky as the two entities entered into a third amendment to their merger agreement, which among other things, stipulated a new due diligence exercise to gauge the viability of pursuing a business combination that has been facing inordinate delays. The amendment gave TMTG six out of the seven board seats in the post-merger setup and created a new class of shares that bestowed additional voting rights on Donald Trump, allowing the former US President to directly control around 55 percent of the merged entity.
In November, however, things took a decidedly optimistic turn when Digital World filed the first amendment to its Form S-4, which is used to register securities with the SEC. DWAC’s amendment added a preliminary proxy statement and a prospectus to its Form S-4, indicating that the SPAC completed its agreed-upon due diligence exercise and was moving ahead with its planned merger with Trump Media and Technology Group.
For the benefit of those who might not be aware, the former US President owns around 90 percent of the Trump Media and Technology Group, the entity behind the Truth Social app. Initially, Digital World had valued TMTG at around $875 million. However, back in April, the 2024 Republican Presidential frontrunner had marked down the worth of his TMTG stake to between $5 million and $25 million.
We noted in a dedicated post last month that Trump’s engagement metrics on Truth Social are falling. This declining trend of activity does not engender much confidence in Digital World’s bullish thesis, especially as Truth Social’s entire raison d’être has been largely nullified ever since Elon Musk unbanned Donald Trump on X in late 2022.