The future of Donald Trump’s social media site, Truth Social, just got a little murkier.
On Thursday, the special purpose acquisition corporation designed to take Truth Social public delayed a shareholder vote on extending the timeline for the deal after failing to get enough support. Leaders of the SPAC, Digital World Acquisition Corp. (DWAC), said its sponsor — ARC Global Investments II — was spending $2.8 million to exercise a contractual option to extend the merger timeline by three months.
Without that influx of cash, Digital World could have been forced to liquidate in a dramatic end to the planned $1.3 billion Truth Social deal. But the planned merger still faces a number of challenges, from a Securities and Exchange Commission investigation to the ongoing probes of Trump himself.
“Right now, I’d say DWAC’s health is shaky,” said Usha Rodrigues, chair of corporate finance and securities law at the University of Georgia Law School.
In the meantime, Truth Social — an important communication channel for the former president, who has been banned from Twitter and Facebook — has struggled to build a user base. Downloads of its app have decreased since it launched in February, and the site does not yet have a revenue stream.
According to Reuters, DWAC “has said it believes [Trump Media and Technology Group] will have ‘sufficient funds’ until April 2023. TMTG said last week that Truth Social is ‘on strong financial footing’ and would begin running advertisements soon.”
But Trump himself seemed to cast doubt on a deal with DWAC on Sept. 3 when he posted on Truth Social “Sign up on TRUTH now, only getting stronger. Google is coming along nicely (I think?). SEC trying to hurt company doing financing (SPAC). Who knows? In any event, I don’t need financing, ‘I’m really rich!’ Private company anyone???”
On Tuesday, Digital World filed Trump’s post in a form 425 filing with the SEC, a form that is meant to disclose “forward-looking statements that involve risks, uncertainties and assumptions.”
A lack of votes
In the meantime, Digital World has postponed its shareholder vote to Oct. 10, in the hopes of rousing the 65 percent support needed to extend the timeline for the Truth Social deal by one year without financial penalty.
If Digital World is unable to reach the 65 percent threshold, it can extend the timeline for one more three-month period after the current extension ends — but it will have to pay to do so unilaterally.
“Obviously they want a year’s worth of time, and they want it for free,” said Rodrigues. “I think it is optimistic to think that these regulatory issues would be resolved and they would get a green light in three months. It is possible but optimistic. And then the six months, for another $2.8 million, they’ve bought themselves some more time. But it’s still risky. It’s a gamble.”
But experts weren’t ready to declare the two companies’ plan dead.
“It’s a setback for this deal, but it’s not a death knell at this point,” said Michael Ohlrogge, associate professor of law at New York University Law School.
Even if the union with Digital World is called off for good, Truth Social’s parent company could find a new way of accessing the capital it needs to continue. Options include standard private financing, pursuing an initial public offering of stock without relying on a SPAC as the vehicle to get there, or selling itself to another firm, Rodrigues said. And there are still SPACs circling.
“They’ve seen how the stock price [of DWAC] surged when there was an announcement of the [TMTG] acquisition,” she added. “There are these certain Trump faithful that are going to buy and get really excited about it.”
Thanks to Lillian Barkley for copy editing this article.