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Jabin Botsford

The Securities and Exchange Commission has approved the merger proposal of former president Donald Trump’s media start-up with a special purpose acquisition company, a critical step for a long-delayed deal that would make the owner of Trump’s website Truth Social a publicly traded company and unlock $300 million in investor funds.

Digital World Acquisition, the SPAC that first launched the merger for Trump Media and Technology Group in 2021, said in an <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036806/d651831dex991.htm" target=_blank>SEC filing</a> late Wednesday that the SEC had signed off on its registration statement and that Digital World would announce a shareholder meeting within two days to vote on the merger’s adoption. Digital World shares climbed Thursday morning, to about $50.

The approval is a victory for Trump, who will hold more than 78 million shares in the post-merger company, a filing shows — a stake that, at current prices, would be worth nearly $4 billion. Trump, who would own between 58 and 69 percent of the company, and other investors could earn tens of millions more shares through a provision, known as an “earnout,” tied to the stock’s performance, a <a href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1849635/000119312524011615/d408563ds4a.htm" target=_blank>filing</a> said.

Jay Ritter, a finance professor at the University of Florida, said the windfall is “paper wealth … with the emphasis on ‘paper,’ since his [Trump Media] shares cannot currently be sold.”

Trump Media’s key stockholders, including Trump and its management team, agreed to a common financial provision, known as a “lockup” period, that prevents them from selling shares for six months after the merger unless Digital World waives the agreement, according to a Digital World <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036093/d408563ds4a.htm" target=_blank>filing</a>. If the merger occurs in April, for instance, Trump would not be able to sell his shares until October, at which point their value may have changed considerably.

Ritter said that in his opinion the merged company’s valuation — roughly $9 billion, based on Digital World’s current price — is out of sync with the Trump company’s financial performance. Trump Media generated $3.4 million in revenue and lost $49 million during the first nine months of 2023, Digital World said in <a href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1849635/000119312523302199/d408563ds4a.htm" target=_blank>a recent SEC filing</a>.

Trump Media is “a money-losing company that generates less than $5 million per year,” Ritter said. Digital World, he said, is in his view “a classic meme stock, whose price is totally unrelated to the underlying fundamentals.”

Trump Media’s chief executive, the former Republican congressman Devin Nunes, said in a <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036987/d651831d425.htm" target=_blank>statement</a> late Wednesday that the company aimed “to accelerate our work to build a free speech highway outside the stifling stranglehold of Big Tech.” And Digital World’s chief executive, Eric Swider, said the “achievement marks a significant milestone.”

But the merger would also open the company to the scrutiny and uncertainty of public markets, where investors could buy and sell shares based on the performance of Truth Social, its sole product. Though it remains Trump’s main online megaphone, the site has struggled to build a user base that would compete with the social media giants Trump initially said it would overtake, including Facebook and X, formerly called Twitter.

Several Trump allies will be nominated to the post-merger company’s board, a <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036093/d408563ds4a.htm" target=_blank>filing</a> showed, including Donald Trump Jr., Trump’s oldest son; Robert E. Lighthizer, Trump’s former trade representative; Linda McMahon, his former administrator of the Small Business Administration; and Kash Patel, a former Nunes aide who served on Trump’s National Security Council.

The merger’s completion would require Digital World to pay an $18 million penalty to the SEC, under a <a href="https://www.washingtonpost.com/technology/2023/07/03/trump-media-digital-world-merger/" target=_blank>settlement</a> announced last summer, to resolve charges that it had misled investors and violated antifraud provisions regarding its initial merger plans.

A federal prosecution of three early Digital World investors, who investigators said made <a href="https://www.washingtonpost.com/technology/2024/02/03/trump-social-dwac-investigation/" target=_blank>tens of millions of dollars in insider trades</a> related to the merger deal, is also scheduled to go to trial in April. In a superseding indictment <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.601296/gov.uscourts.nysd.601296.81.0.pdf" target=_blank>filed</a> last week in federal court, prosecutors added a charge of money laundering to one investor, Michael Shvartsman, saying he used some of his profits to buy a $14 million luxury yacht he later renamed “Provocateur.” Trump, Trump Media and Digital World have not been accused of wrongdoing in the case.

The deal is expected to easily win shareholder approval, given the likelihood that share prices will rise after the merger. Digital World said in a <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036093/d408563ds4a.htm" target=_blank>filing</a> it intends to apply for the post-merger company’s stock to be listed on the Nasdaq exchange using Trump’s initials, “DJT," as its symbol.

But the merger could face resistance from Trump Media’s co-founders, Andy Litinsky and Wes Moss, whose investment company, United Atlantic Ventures, has recently threatened to enjoin. or block, the merger from completion, Digital World said in a <a href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001849635/000119312524031070/d408563ds4a.htm" target=_blank>filing</a> Monday. Their company sent letters to Digital World in recent weeks claiming that its initial agreement with Trump from 2021 was still in effect and granted them the rights to appoint two directors to the board and to receive a $1 million reimbursement claim, among other provisions, the filing said.

A UAV representative sent a text message to a Trump Media noteholder saying the company might try to block the merger, and UAV also sent Trump Media a letter last week threatening legal action, the Digital World filing said. Trump Media told Digital World it disagrees with UAV’s assertion and that the agreement was voided in 2021 in favor of a new deal granting “extensive intellectual property and digital media rights related to President Trump” to Trump Media’s new leaders.

The men founded the company and pitched it to Trump in early 2021 but were expelled amid infighting with Trump’s other business partners, a former executive at the company, Will Wilkerson, <a href="https://www.washingtonpost.com/technology/2022/10/15/truth-social-trump-animosity-whistleblower/" target=_blank>told</a> The Washington Post and the SEC in a 2022 whistleblower complaint.

Patrick Orlando, who was fired as Digital World’s chief executive last year but remains on the board, has also demanded “additional compensation,” a request Digital World denied, the SPAC said in its <a href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001849635/000119312524031070/d408563ds4a.htm" target=_blank>filing</a> Monday. “As a result, the professional relationship … has strained and there is no assurance that Mr. Orlando … will be cooperative in connection” with the merger deal.

Orlando played a pivotal role in creating Digital World, including connecting it to its sponsor, Arc Global Investments, a subsidiary of the Shanghai-based investment firm <a href="https://www.washingtonpost.com/business/2021/12/23/trump-spac-deal-sec/" target=_blank>Arc Capital</a>. Sponsors provide the initial funding to launch a SPAC before it goes public. “Orlando may use his control over the Sponsor and the majority of the Founder Shares as leverage to raise further demands,” the filing said.

If the merger is approved, United Atlantic Ventures would own about 6 percent of the company, while Arc Global Investments would own about 9 percent, a Digital World <a href="https://www.sec.gov/Archives/edgar/data/1849635/000119312524036093/d408563ds4a.htm#rom408563_32" target=_blank>filing</a> shows.

Michael Ohlrogge, a New York University associate professor, said Trump’s post-merger company could raise conflict-of-interest concerns for the Republican <a href="https://www.washingtonpost.com/politics/interactive/presidential-candidates-2024/" target="_blank" class="contextual_link">presidential candidate</a>, given that companies and foreign governments could deliver him money indirectly by buying ads on Truth Social. Trump’s businesses received more than $7 million in payments from foreign governments, including officials in China and Saudi Arabia, during his presidency, according to a House Oversight Committee <a href="https://www.washingtonpost.com/politics/2024/01/04/report-trump-businesses-received-78-million-foreign-payments-during-presidency/" target="_blank">report</a> released by Democrats last month.

Finalist for the Livingston Award in 2022. Member of the "Pegasus Project" team that won a George Polk Award in 2021. 

University of Florida

Drew Harwell is a reporter for The Washington Post covering technology. He was a member of an international reporting team that won a George Polk Award in 2021.

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