The blank-check company that planned to merge with former President Donald Trump's struggling Truth Social venture failed to secure enough shareholder support for a one-year extension to complete the deal, according to Reuters.
Trump launched the Trump Media & Technology Group, which owns Truth Social, with plans for a $1.3 billion cash infusion from Digital World Acquisition Corp., a special purpose acquisition company (SPAC). But the deal has been on hold indefinitely as Digital World faces scrutiny by the Securities and Exchange Commission and the Justice Department over whether the company illegally negotiated the deal with Trump before going public.
Digital World asked its investors to approve a one-year extension to complete the merger as a result of the investigations, which the company said in a filing "could materially delay, materially impede, or prevent the consummation of the business combination."
The company needs 65% of its shareholders to extend the deadline for the merger but by Monday "far fewer Digital World shareholders than those required had voted in favor," according to Reuters. Most of the company's shareholders are individual investors and it has been "challenging" getting them to vote through their brokers, Digital World CEO Patrick Orlando said last week, according to the report.
The vote threatens to kill the planned merger and Digital World executives are already scrambling for alternative options, according to the report. The company may try to postpone the vote deadline in an effort to garner more support from shareholders. Without further action, the SPAC is set to liquidate on Thursday and return the money it raised from investors a year earlier.
Trump's company was set to cash in on $293 million from the deal along with $1 billion in private investment. Trump's company in the meantime has taken on tens of millions in loans, according to the report.
Trump downplayed the deal ahead of Monday's vote on Truth Social, arguing that the company is "doing really well" despite widely-reported financial struggles. The former president accused the SEC of "trying to hurt" his merger partner and suggested that he may line up private investors instead.
"I don't need financing, 'I'm really rich!'" he wrote. "Private company anyone???"
Trump says even if the deal falls apart to take Truth Social public, he doesn’t need financing because, “I’m really rich!” pic.twitter.com/KW1sO0Nq2P
— Ron Filipkowski 🇺🇦 (@RonFilipkowski) September 3, 2022
Despite his wealth, Trump has largely financed his business ventures and presidential campaigns with other people's money, racking up billions in debt that he does not always pay back.
Truth Social's right-wing web host is threatening legal action against the company, accusing it over refusing to pay $1.6 million in contractually obligated payments, Fox Business reported last month, adding that the social network's finances appear to be in "significant disarray."
Digital World in SEC filings has acknowledged that "a number of companies that were associated with [Trump] have filed for bankruptcy" and that "there can be no assurances that [Trump's media company] will not also become bankrupt."
In a filing in May, Digital World said that Truth Social "may never generate any operating revenues or ever achieve profitable operations" and will "most likely fail" if it does not address its risks.
The company has also faced numerous setbacks since its messy, glitch-ridden launch last year. The U.S. Patent and Trademark Office last month rejected Truth Social's trademark application because Trump's company's name was "confusingly similar" to other businesses.
The company has also been blocked from the Google app store over its content moderation failures. Trump in his Truth Social post insisted that "Google is coming along nicely (I think?)."
SEC filings show that Truth Social "still has no guaranteed source of revenue and a questionable path to growth," The Washington Post reported last week.
Digital World, meanwhile, is facing multiple federal probes into whether it illegally negotiated the merger before going public in September 2021. The company said in June that it was subpoenaed by a federal grand jury and was facing probes by the DOJ and the SEC that would delay the merger. And the company warned that Trump's mounting scandals pose a significant threat to the business.
"The value of TMTG's brand may diminish if the popularity of President Trump were to suffer," the company said in a filing last month. "Adverse reactions to publicity relating to President Trump, or the loss of his services, could adversely affect TMTG's revenues, results of operations and its ability to maintain or generate a consumer base, as well as the outcome of the proposed Business combination."
