Trump’s SPAC soars in stock market before merger with Truth Social

Donald Trump appeared in a New York court Thursday in the criminal investigation into his alleged falsification of business records arising from hush money paid to cover up scandals before the 2016 election. And on Friday, he may be sentenced to pay a multimillion-dollar fine in the civil fraud case involving his businesses.

Meanwhile, however, the planned IPO of his social media company, Truth Social, is moving forward. Shares of the special purpose acquisition company (SPAC) — a blank-check firm formed for the purposes of effecting a merger or other business operation — that will merge with Truth Social jumped up to 29% on Thursday, before closing slightly lower. Indeed, shares in Trump’s SPAC — a company called Digital World Acquisition Corp — have been rising all year. In just a month and a half, its value has increased by more than 180%.

The viability of the merger, announced in 2021, was in doubt due to various regulatory hurdles and constant delays. However, the U.S. Securities and Exchange Commission (SEC) on Wednesday approved the prospectus for the merger between Digital World with Trump Media & Technology Group (TMTG), the company that owns Truth Social. Digital World is expected to announce on Friday the date of the meeting at which the merger must be approved. TMTG is chaired by Trump, who owns 90% of its capital. As of last September 30, TMTG had 36 full-time employees.

Trump’s social network company has minimal revenues and heavy losses. TMTG’s revenue between January and September 2023 was only $3.4 million, while its losses were $49 million.

The name Trump appears 469 times in the deal’s prospectus. According to the document, Digital World will pay $875 million in stock for TMTG. The document indicates that Trump will effectively own at least 58.1% of the voting rights of the common stock of New Digital World, the merged company. By owning more than 50%, he will not have to adhere to certain corporate governance requirements.

Risk of jail time

The final prospectus includes the warnings contained in earlier drafts, particularly regarding the possibility of Trump ending up in jail. “The death, incarceration, or incapacity of President Trump, or discontinuation or limitation of his relationship with TMTG, may negatively impact TMTG’s business,” reads one of the sections on the risks. “TMTG’s success depends in part on the popularity of its brand and the reputation and popularity of its Chairman, President Donald J. Trump,” it adds.

The document explains that the former U.S. president “has significant influence on TMTG’s business plan,” arguing “President Trump’s reputation and relationships are a critical element to the success of TMTG’s business.”

“TMTG’s future success will depend, to a significant extent, upon the continued presence and popularity of President Trump,” the document states. “If President Trump were to discontinue his relationship with TMTG due to death, disability, criminal conviction, incarceration, or any other reason, or limit his involvement with TMTG due to his ongoing candidacy for political office, TMTG would be significantly disadvantaged.”

The document also lists some of Trump’s previous business dealings and past scandals, pointing out that several of his companies have gone bankrupt. “There can be no assurances that TMTG will not also become bankrupt,” it says.

TMTG relied primarily on bridge financing — in the form of convertible promissory notes — to create Truth Social. It now intends to use the funds it receives from the merger (Digital World has more than $300 million in cash on hand) to fuel its growth. The company has historically reported operating losses and negative cash flows. According to the merger prospectus, it expects this to continue for the foreseeable future. “TMTG’s ability to become profitable and generate positive cash flow depends on TMTG’s success in growing its user base, platform partners, and advertisers,” it states.

The company acknowledges that it needs to attract Republican voters to Truth Social to be viable, and admits that the business will be hurt if Trump loses popularity or new controversies arise that damage his credibility or people’s willingness to use his social media platform.

“We are immensely proud of the strides we’ve taken towards advancing the Business Combination,” said Eric Swider, the CEO of Digital World, in a statement filed Thursday with the SEC. “This achievement marks a significant milestone for us. Our sincere thanks go to our shareholders for their unwavering support. We are excited to soon share the news of the Business Combination’s approval process with them.”

For his part, TMTG’s CEO Devin Nunes said the goal of the merger was “to accelerate our work to build a free speech highway outside the stifling stranglehold of Big Tech.” Nunes is a former U.S. representative and ardent Trump supporter, who voted against certifying Joe Biden’s victory in the 2020 election.

Trump founded Truth Social when he was banned from Twitter and Facebook following the January 6, 2021 assault on the U.S. Capitol.

After Elon Musk bought Twitter, Trump was allowed to return to the platform. The SpaceX founder has allowed disinformation to flourish on Twitter — which he renamed X — with many conservatives voices allowed back despite having shared fake news. Trump was also allowed back on Facebook after a two-year ban.

This has somewhat taken away Truth Social’s edge, as the company’s main selling point was that it was the exclusive platform of Trump’s social media messages. Truth Social has never caught on with the public. Trump — the most popular profile on the network — has far fewer followers on Truth Social (6.6 million) than on Twitter, where he is still followed by 87.5 million accounts, even though he no longer uses the platform.

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