Digital World Acquisition Corp. (NASDAQ:DWAC) filed an update containing several amendments to its deal with Trump Media & Technology Group that set up a roadmap of obligations for both sides to complete this long-running saga.
First, the changes provide some push and pull for TMTG’s “Company Principal”. This is logically understood to be former US President and TMTG Chairman Donald Trump (whose full name curiously does not appear in the documents.)
He is to receive a new class of high vote shares, which will have the same rights and obligations as ordinary stock, but in all cases entitle the holder to the equivalent of at least 55% of the voting power over company matters.
As an additional carrot for Trump, the deal’s earnout hurdles have dropped from $15, $20 and $30 to $12.50, $15, $17. Either range seemed destined to bear fruit given the deal’s fervent early trading activity, which saw Digital World shares spike to $175 following the deal’s announcement in October 2021.
The earnout would disperse a total of 40,000,000 shares, which, at their price hurdles would be worth $187.5 million, $225 million and $170 million to TMTG shareholders, most of which would go presumably to the Company Principal Trump himself.
The long wait to close has dampened enthusiasm alongside broader macro and SPAC market headwinds. But, this has still seen Digital World bottom at a low of $12.40 and high of $25.85 year-to-date.
That high came July 21 on news that Digital World had reached a settlement to pay a $18 million fine to the SEC as a part of a fraud investigation. That probe alleged Digital World executives improperly engaged with the Trump side before the SPAC’s IPO and three people with knowledge of the discussions traded on insider knowledge.
But, if the deal is not consummated by January 1, 2025 or Digital World liquidates, this fine is to be waived. This at least lifts the uncertainty about what the SEC investigation could mean for the deal, but there are plenty more loose ends to tie up.
Digital World’s initial S-4 for the deal has been under review since May 2022 and the SPAC has not filed any amended S-4’s since then. Meanwhile, Digital World is coming up on a September 8 transaction deadline.
The extension that got Digital World to this deadline took six adjournments to secure, likely due to the high level of retail ownership of its stock and the voter turnout issues that can bring about. Insiders and institutions continue to own just 7.7% of the stock, down from 9.2% at the time of its last vote.
With that in mind, Digital World hopes that now that the SEC investigation is done, this deal can finally get moving. The outside date has been moved to December 31, but TMTG is to make its best efforts to provide updated financials by an August 31 deadline.
The two sides will then negotiate any fresh amendments deemed necessary for the 20 days following this date. Also, by August 31, Digital World is to discuss a reduction or termination of the transaction’s PIPE.
The PIPE was initially set to raise $1 billion, but there have been reports that some investors were eager to renegotiate terms or get out of their obligations. Investors representing $138.5 million did so last September. If this all works out, Digital World plans to have a new S-4 together by October 9 at the latest.
But, there a few last big things the SPAC wants out of TMTG.
It may terminate the deal before September 30 if, upon review of TMTG’s latest diligence, it is no longer convinced the deal is in Digital World’s interest. The SPAC may also terminate if the Company Principal does not waive his right to terminate the transaction’s license agreement by September 30.
This license agreement is essentially TMTG’s largest asset as it requires Trump to post exclusively on the company’s nascent Truth Social social media service. That exclusivity wears off six hours after each post and to was to last initially for 18 months after which it could be terminated.
In the world that this deal was announced into, Trump had been effectively booted from posting to most major social media platforms, but that has now changed as Trump’s ban from Truth Social’s competing service, Twitter, has already been lifted since its takeover by Elon Musk.
With this change, it appears that Digital World is saying essentially that if Trump has the ability to terminate this exclusivity, the SPAC is no longer interested.
TMTG may also still walk away from the deal by September 30. Or, if Digital World misses its October 9 S-4 deadline, then it may decide to do so by October 13.
Either way, this transaction appears closer to some kind of a final conclusion than at any point in the past two years.
But, these deadlines are extremely tight and both sides will have multiple plates – due diligence, PIPE negotiations, an extension vote, and possibly new deal tweaks – all spinning while Digital World tries to get a fresh S-4 together by October 9, two months from now.
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