Digital World Acquisition Corporation (NASDAQ:DWAC), the SPAC that is set to merge with Donald Trump's company that owns the Truth Social platform, is reportedly facing pressure from investors amid its failure to complete the deal.
What Happened: Investors who have committed about $1 billion in private investment in public equity, or PIPE, financing to Digital World are seeking better terms, the Financial Times reported.
Their investment was structured as a subscription to the blank check company’s preferred stock that is convertible into common shares in the yet-to-be-listed Trump Media & Technology Group, or TMTG, the report noted.
See Also: Trump-Linked Digital World Takes A Hit As Investors Grow Tired Of Merger Delays
The initial terms provided for a conversion rate of $33.60 per share if Digital World’s shares remained above $56, while also allowing the possibility of the price reduced to $10, which is the per-share price at which the SPAC went public, the report added.
With the SPAC’s stock price falling below the threshold, the PIPE investors are now negotiating with its CEO Patrick Orlando for a throwaway price of $2 per share, it said.
This would allow them to profit from the differential between Digital World’s current stock price of $18.61 and the revised price the investors are seeking.
Why It’s Important: Digital World’s deal with PIPE investors was set to expire on Tuesday, FT said.
If the PIPE investors withdraw their offer, Trump’s TMTG will get much less cash than the $1.3 billion infusion it was supposed to receive from Digital World. On the other hand, if Orlando agrees to the lowered conversion price, then PIPE investors stand to receive more shares, diluting the stake of other investors, including Trump, the report said.
It also noted that talks are ongoing and no agreement has been reached on the proposed revision to the deal terms.
Digital World shareholders are scheduled to vote on its proposed combination with TMTG in October. This follows a three-month extension the SPAC announced following its failure to get shareholder nod for a 12-month extension to allow the consummation. The SEC is yet to give its clearance as it is still reviewing disclosures on the deal amid civil and criminal investigations into the circumstances around the deal.
Price Action: Digital World shares closed Tuesday’s session down 16.92% at $18.61, according to Benzinga Pro data.
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