The Securities and Exchange Commission has approved former President Donald Trump's media startup's merger proposal with a special purpose acquisition company. It's a crucial step in a long-delayed deal that would make the owner of Trump's website Truth Social a publicly traded company, unlocking $300 million in investor money.
Digital World Acquisition, the SPAC that first initiated the Trump Media and Technology Group merger in 2021, said in a filing with the SEC late Wednesday that the SEC had signed its registration statement and that Digital World would hold a shareholder meeting within two days will announce a vote on the acceptance of the merger. Shares of Digital World rose to about $50 on Thursday morning.
The approval is a victory for Trump, who will hold more than 78 million shares of the post-merger company, a filing shows — a stake that would be worth nearly $4 billion at current prices. Trump, who would own between 58 and 69 percent of the company, and other investors could earn tens of millions more shares through a commission known as an “earnout” tied to the stock's performance, a filing said.
Jay Ritter, a finance professor at the University of Florida, said the windfall is “paper wealth … with the emphasis on 'paper' since it is.” [Trump Media] Shares cannot be sold at this time.”
Trump Media's top shareholders, including Trump and his management team, agreed to a common financial clause known as a “lockup” that prevents them from selling shares for six months after the merger unless Digital World waives the agreement, according to a report by Digital Worldwide Filing. For example, if the merger were to take place in April, Trump could not sell his shares until October, by which time their value could have changed significantly.
Ritter said that in his opinion the valuation of the combined company – about $9 billion, based on Digital World's current price – was inconsistent with the Trump company's financial performance. Trump Media had revenue of $3.4 million and lost $49 million in the first nine months of 2023, Digital World said in a recent filing with the SEC.
Trump Media is “a money-losing company that makes less than $5 million a year,” Ritter said. In his view, Digital World is “a classic meme stock whose price has no connection to the underlying fundamentals.”
Trump Media's chief executive, former Republican congressman Devin Nunes, said in a statement late Wednesday that the company intends to accelerate “our work to build a highway for free expression outside the suffocating stranglehold of Big Tech.” And Eric Swider, head of Digital World, said that “the success represents a significant milestone”.
But the merger would also expose the company to the scrutiny and uncertainty of public markets, where investors could buy and sell shares based on the performance of Truth Social, its only product. Although it remains Trump's main online megaphone, the site has struggled to build a user base that would compete with the social media giants that Trump initially said would overtake, including Facebook and X, formerly Twitter called.
Several Trump allies will be nominated to the post-merger company's board, a filing shows, including Donald Trump Jr., Trump's eldest son; Robert E. Lighthizer, Trump's former trade representative; Linda McMahon, his former Small Business Administration administrator; and Kash Patel, a former Nunes aide who served on Trump's National Security Council.
Completing the merger would require Digital World to pay an $18 million penalty to the SEC as part of a settlement announced last summer to resolve allegations that the company misled investors and violated anti-fraud regulations violated its original merger plans.
A federal case will also be heard in April against three early Digital World investors who, according to investigators, made insider transactions worth tens of millions of dollars in connection with the merger deal. In a supplemental indictment filed last week in federal court, prosecutors leveled money laundering charges against an investor, Michael Shvartsman, saying he used some of his winnings to purchase a $14 million luxury yacht that he later renamed it “Provocateur”. Trump, Trump Media and Digital World were not accused of wrongdoing in the case.
Given the likelihood that share prices will rise following the merger, the deal is expected to easily receive shareholder approval.
However, the merger could face resistance from Trump Media co-founders Andy Litinsky and Wes Moss, whose investment firm United Atlantic Ventures recently threatened to “order” or block completion of the merger, Digital World said in a filing Monday File . Her company sent letters to Digital World in recent weeks claiming that the original 2021 agreement with Trump was still in effect and, among other things, gave them the right to appoint two directors to the board and a right to reimbursement amount of $1 million, the filing said.
A UAV representative sent a text message to a Trump Media bondholder saying the company might try to block the merger, and UAV also sent Trump Media a letter last week threatening legal action, the statement said Files from Digital World. Trump Media told Digital World that it disagreed with UAV's claim and that the agreement was rescinded in 2021 in favor of a new deal that gave Trump Media's new executives “extensive intellectual property and digital media rights related to President Trump” granted.
The men founded the company and introduced it to Trump in early 2021, but were expelled due to infighting with Trump's other business partners, a former company executive, Will Wilkerson, told the Washington Post and the SEC in a 2022 whistleblower complaint.
Patrick Orlando, who was fired as Digital World's chief executive last year but remains on the board, has also requested “additional compensation,” a request that Digital World rejected, the SPAC said in its filing Monday. “As a result, the professional relationship … is strained and there is no guarantee that Mr. Orlando … will be cooperative in connection with the merger agreement.”
Orlando played a critical role in the creation of Digital World, including connecting with its sponsor Arc Global Investments, an affiliate of Shanghai-based investment firm Arc Capital. Sponsors provide the initial funding to form a SPAC before it goes public. “Orlando could use its control of the sponsor and majority of the founder shares as leverage to make further demands,” the filing said.
If the merger is approved, United Atlantic Ventures would own about 6 percent of the company, while Arc Global Investments would own about 9 percent, according to a filing obtained by Digital World.
Michael Ohlrogge, an associate professor at New York University, said Trump's post-merger venture could pose conflicts of interest for the Republican presidential candidate because companies and foreign governments could indirectly provide him with money by buying ads on Truth Social. Trump's companies received more than $7 million in payments from foreign governments, including officials in China and Saudi Arabia, during his presidency, according to a House Oversight Committee report released by Democrats last month.