Donald Trump appeared in a New York court on Thursday in a criminal investigation into allegations of falsifying business records stemming from hush money paid to cover up a scandal before the 2016 election. And on Friday, he could be sentenced to pay millions of dollars in fines in a civil fraud case involving his business.
But in the meantime, the planned IPO of his social media company Truth Social is moving forward. Shares of the special purpose acquisition company (SPAC) — a blank check company formed for the purpose of conducting mergers and other business operations — merging with Truth Social Inc. traded slightly lower after soaring as much as 29% on Thursday. finished. In fact, the stock price of President Trump’s SPAC, a company called Digital World Acquisition Corp., has been rising all year. In just one and a half months, its value has increased by more than 180%.
The feasibility 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 a prospectus for a merger with Trump Media & Technology Group (TMTG), which owns Digital World and Truth Social. Digital World is expected to announce the date of the meeting required to approve the merger on Friday. TMTG is chaired by Trump, who owns 90% of the company’s capital. As of September 30 last year, TMTG had 36 full-time employees.
Trump’s social network company’s revenue is minimal, but its losses are large. TMTG’s revenue from January to September 2023 was just $3.4 million, with a loss of $49 million.
Trump’s name appears 469 times in the deal’s prospectus. According to the document, Digital World will pay TMTG $875 million in equity. The document shows that Mr. Trump will effectively own at least 58.1% of the voting power of the common stock of the combined company, New Digital World. Owning more than 50% eliminates the need to comply with specific corporate governance requirements.
Risk of prison sentence
The final prospectus includes warnings that were included in earlier drafts, particularly regarding the possibility of Mr. Trump going to prison. One section on risks reads: “The death, incarceration, or incapacity of President Trump or the severing or restriction of his relationship with TMTG could adversely affect TMTG’s business.” “TMTG’s success will depend in part on the popularity of its brands and the reputation and popularity of its Chairman, President Donald J. Trump,” it added.
The document explains that former President Trump “has significant influence over TMTG’s business plans,” and asserts that “President Trump’s reputation and relationships are critical to the success of TMTG’s business.” There is.
“TMTG’s future success will depend, to a significant extent, on President Trump’s continued presence and popularity,” the document states. “If President Trump disassociates from TMTG due to death, disability, conviction, incarceration, or any other reason, or limits his involvement with TMTG due to his continued candidacy for political office, TMTG It would be a huge disadvantage.”
The document also lists Mr. Trump’s previous business dealings and past scandals, noting that several of Mr. Trump’s companies have gone bankrupt. “There is no guarantee that TMTG will not go bankrupt either.”
TMTG relied on bridging financing, primarily in the form of convertible notes, to establish Truth Social. The company now intends to use the proceeds from the merger (Digital World has more than $300 million in cash on hand) to fuel growth. The company has previously reported operating losses and negative cash flow. According to the merger prospectus, this situation is expected 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,” the document said.
The company has acknowledged that it needs to attract Republican voters to Truth Social in order to stay in business, and is concerned about Trump’s declining popularity, Trump’s credibility and people’s willingness to use the social media platform. He acknowledged that any new controversy that undermines his business would hurt his business.
“We are very proud of the progress we have made in advancing our business integration,” Digital World CEO Eric Swider said in a statement filed with the SEC on Thursday. Ta. “This achievement is an important milestone for us. We would like to thank our shareholders for their continued support. We look forward to communicating with them shortly regarding the approval process for the business combination. I’m excited to share it.”
TMTG CEO Devin Nunes said the purpose of the merger is to “accelerate efforts to build free speech highways outside of Big Tech’s stifling stranglehold.” Nunes is a former U.S. congressman 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, attack on the U.S. Capitol.
After Elon Musk bought Twitter, Trump was allowed to return to the platform. The SpaceX founder allowed misinformation to spread on Twitter, renamed Twitter to X, and shared fake news, yet many conservative voices were forgiven. Trump was also allowed to return to Facebook after a two-year ban.
This took away some of the advantage from Truth Social, since the company’s main selling point was being the exclusive platform for Trump’s social media messages. Truth Social never caught on with the masses. Trump, the most popular person on the network, has far fewer followers on Truth Social (6.6 million) than on Twitter, but Trump still has 87.5 million followers, even though he doesn’t currently use the platform. is followed by the account.
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