Digital World Acquisition Corp. shares dropped Tuesday after shedding 8% Monday as federal filings show more troubles for the special purpose acquisition company and its attempted merger with former President Donald Trump's tech and social-media platform.
DWAC stock fell 3% to 24.60 Tuesday during market trading and is now down more than 80% from its October high of 175. This comes after an Aug. 25 federal exchange commission filing showed DWAC is asking shareholders to approve a one-year extension for it to finish its business merger with Trump Media and Technology Group, or TMTG.
Trump Media and Technology Group is the parent of the conservative social-media platform Truth Social.
DWAC announced the extension vote will be on Sept. 6, warning investors that if the delay to September 2023 is not granted, the company will cease operations and liquidate shares. Digital World Acquisition added that even if the delay is agreed to, the deal may still not be completed as federal investigations into the business continue.
DWAC announced in October that it would merge Trump Media and Technology Group, with the aim of taking Trump's company public. However, the U.S. Securities and Exchange Commission began to investigate DWAC's business dealings in December.
In late June, a DWAC federal filing revealed a federal grand jury in the Southern District of New York had subpoenaed the company's board members seeking more details on the merger deal. At the time, it warned the Justice Department and SEC investigations risked slowing or ending the merger.
"Without the extension, the board believes that there is significant risk that we might not, despite our best efforts, be able to complete the business combination on or before the termination date," the company wrote in its Aug. 25 federal filing.
DWAC Could Dissolve
The blank-check company also said it "would be forced to liquidate even if our stockholders are otherwise in favor of consummating the business combination." The company reports investors could redeem outstanding common stock at $10.20 per share until the time of the meeting. After the meeting, stock prices would be reassessed according to then-current amounts in the company's trust account.
In its quarterly report on August 23, DWAC also reported it had lost $6.2 million in the first half of the year.
Digital World Acquisition CEO Patrick Orlando owns around 80% of the voting rights, appearing to make the extension vote procedural.
Late last year, Orlando headed special purpose acquisition company Yunhong International. He announced in November it would dissolve, redeeming outstanding shares at $10.31 per shares.
Investigation To Hurt DWAC Stock?
The New York Times reported Trump and Orlando discussed a deal months before DWAC went public. Those discussions may have violated securities law.
After the merger announcement, DWAC stock increased. However, observers were wary of the speed at which that deal came together. Shares of Digital World began trading on Sept. 30.
The Ultimate Donald Trump Stock: Is DWAC Worth It Amid Legal Issues?
Truth Social was launched after Trump was banned from Twitter, following the Jan. 6 riot at the U.S. Capitol last year. Recent congressional hearings on the riots have put more focus on the former president's actions during that time.
The Trump-backed social media app launched in February, with a number of users citing glitches and difficulties creating accounts.
DWAC Stock Depends On Trump Popularity
DWAC reported on Aug. 25 that a potential risk to the success of its business merger is Trump's popularity.
"If President Trump becomes less popular or there are further controversies that damage his credibility or the desire of people to use a platform associated with him, and from which he will derive financial benefit, TMTG's results of operations, as well as the outcome of the proposed business combination, could be adversely affected," DWAC wrote in the filing.
DWAC stock took a hit after Tesla CEO Elon Musk's plans to buy Twitter gained traction. While the deal is now in limbo, Musk has said he wants Twitter to be a "free speech" haven. This could potentially siphon off some of Truth Social's audience.
On Tuesday, Axios reported Alphabet's Google hasn't approved Truth Social's Android app to be on its "Play Store," citing insufficient content moderation.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
