SEC Approves Truth Social Merger Deal, Greenlights Trump Return to Wall Street

Former US President Donald Trump leaves Trump Tower to attend his defamation trial at Manhattan federal court, on January 26, 2024. Charly Triballeau/AFP via Getty Images

Former President Donald Trump’s social media company has finally secured regulatory approval to merge with a special purpose acquisition vehicle after two years of struggle. It marks a victory for the GOP candidate that will place the merged entity on the stock exchange.

The U.S. Securities and Exchange Commission (SEC) approved the merger between Digital World Acquisition Corp. (DWAC) and former president’s Trump Media & Technology Group (TMTG) on Wednesday, according to a Feb. 14 filing. TMTG is the owner of the social media platform Truth Social. Following the announcement, shares of DWAC surged. At the end of Tuesday, DWAC was trading at around $40 per share. On Friday morning, shares were at $50.

According to an SEC filing, President Trump will hold 78.75 million shares in the combined entity, representing 58.1 to 69.4 percent of the merged firm. At $50 each, President Trump’s shares will represent nearly $4 billion in value.

The SEC approval comes after two years of attempts to merge the businesses. DWAC and TMTG announced a merger in 2021. However, since then, DWAC has faced investigations by the Justice Department, agreed to an $18 million settlement with the SEC over inaccurate disclosures, removed its chief executive, and made changes to its board.

Pending stockholder approval, DWAC said it intends to announce the meeting date this week. If approved, it will pave the pathway for TMTG to become a publicly traded company.

Commenting on President Trump’s $4 billion stake, Jay Ritter, a finance professor at the University of Florida, told The Washington Post that this is only “paper wealth ... with the emphasis on paper, since his [Trump Media] shares cannot currently be sold.”

All key shareholders of the merged company, including President Trump, will be subject to a “lock-up” period for six months. This means they will be unable to sell shares for six months after the merger unless DWAC gives them a waiver.

In a November filing, DWAC explicitly admitted that Truth Social’s value is directly linked to its association with President Trump. If the former president “were to cease to be able to devote substantial time to Truth Social, TMTG’s business would be adversely affected,” it said.

DWAC is a special purpose acquisition vehicle (SPAC), a company without any commercial operations and created only to raise capital via an IPO to eventually acquire or merge with an existing company.

Eric Swider, the CEO of DWAC, said they were “immensely proud of the strides we’ve taken towards advancing the business combination.”

“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.”

Devin Nunes, the CEO of TMTG, pointed out that Truth Social was “created to serve as a safe harbor for free expression and to give people their voices back. Moving forward, we aim to accelerate our work to build a free speech highway outside the stifling stranglehold of Big Tech.”

Merger Approval

Mr. Ritter told CNN he estimates the merged company’s valuation to be at $8 billion on a fully diluted basis. “This is a meme stock. The valuation is totally divorced from the fundamental value of the company.”

He called the valuation “crazy” since TMTG is not generating enough revenue and is burning through cash. For the three months ending Sept. 30, 2023, TMTG suffered a net loss of $26 million and only generated revenues of around $1 million.

Between February 2021 and June 2023, TMTG had used $35.36 million out of the $37.96 million raised through convertible promissory notes. The notes have terms between 18 and 36 months, with interest accruing at 5-10 percent annually.

Only by completing its merger will TMTG gain access to enough capital to pay off its debts. “TMTG believes that it may be difficult to raise additional funds through traditional financing sources in the absence of material progress toward completing its merger with Digital World,” DWAC’s November SEC filing said.

Once the merger is completed, TMTG will have access to $290 million in funds held by DWAC as well as an extra $1 billion that other investors have committed to the combined firm.

Shareholders have an incentive to approve the merger; if it does not proceed, DWAC will be forced to liquidate, resulting in shares valued at only $10.

“Anyone who holds shares and votes against the merger is crazy,” Mr. Ritter said. “Then again, I might argue that everyone holding DWAC shares is crazy,” he added, referring to the higher valuation and sparse revenues of the company.

In an interview with CNN, Matthew Tuttle, CEO of Tuttle Capital Management, said that the merged company’s share price will be based on how President Trump’s life plays out.

“The thing about Trump and anything related to Trump is, love him or hate him, there is going to be drama ... Really, I would not have expected anything less,” he said.

Mr. Tuttle has bought options to buy DWAC shares in his personal account. “Anything bullish for Trump is going to be bullish for the stock.”