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After formally losing every cent of the original $1 billion in PIPE investments, the Special Purpose Acquisition Company (SPAC) Digital World – which still intends to merge with Truth Social’s parent entity, Trump Media and Technology Group (TMTG) – appears to have secured a critical financial lifeline as it continues to navigate the messy labyrinth of its still-pending business combination.
I don’t understand why the need for all the goodies included in the new $DWAC PIPE. The share price is in the $40s, but they have a UNIT (which includes a half warrant) converting at $8.00??? And then they get even more warrants on top of that? Why the fire sale?
— SPACInsider (@spac_insider) February 8, 2024
To wit, Digital World has now announced that it has issued promissory notes worth $50 million. These notes not only offer annual interest of 8 percent but are also eligible to be converted into equity. Provided that qualifying conditions are met, lenders will receive equity units, where one unit equals a single Digital World common share and half of a warrant. As an added sweetener, the conversion price is set at just $8. This means that lenders can acquire Digital World common stock at $8 per share and then sell it in the market at a substantial premium, given the current stock price of $47.03.
Additionally, Digital World has also entered into warrant subscription agreements with certain institutional investors, where each warrant is convertible into one common share at a price of $11.50 per share. The SPAC intends to issue 3.05 million such warrants as soon as its merger agreement with Trump Media and Technology Group achieves closure.
Do note that Digital World’s planned merger with TMTG has remained in limbo for nearly two years now due to an onslaught of federal investigations related to improper disclosures in the run-up to the formalization of the merger agreement between the two entities. While the SEC has reached a settlement with the SPAC on this matter, FINRA is yet to provide a similar reprieve.
Additionally, Trump Media and Technology Group itself is being investigated by federal prosecutors in New York for allegedly violating statutes related to money laundering. The federal authorities are examining loans worth $8 million that were routed through the Caribbean but originated from obscure entities connected with Russian President Vladimir Putin.
Of course, in the absence of a merger with Digital World and the resulting cash influx, Trump Media and Technology Group and its Truth Social app continue to face liquidity issues. Axios recently reported that the platform generated just $3.38 million in revenue in the first 9 months of 2023, resulting in a net loss of $49 million during this period. Critically, as of September 2023, Truth Social had just $1.8 million as cash in hand against total liabilities of $60.5 million. Bear in mind that TMTG has severely contested the veracity of such reports. Against a target of 81 million users by 2026, the platform currently has only around 6.5 million users.