A $1 billion financing deal is in doubt because Trump Media is taking too long to merge.
Soon, a deal with hedge funds and other wealthy investors will end, and if certain conditions are not met, they could leave the new social media company.
The social media company backed by former President Donald J. Trump might not be able to count on a $1 billion deal it set up to fund its new Truth Social platform.
A regulatory filing says that about 30 hedge funds and other wealthy investors agreed to the deal last year. The deal is set to end on September 20. The status of the offer became uncertain when the shell company that wants to merge with Mr. Trump’s company pushed back the deadline by at least three months.
The $1 billion financing deal, called a “private investment in public equity” (PIPE), was meant to give Trump Media & Technology Group, which owns Truth Social, another way to get money after it merged with Digital World Acquisition Corp., a “special purpose acquisition company” (SPAC).
In September of last year, Digital World raised $300 million through an initial public offering. This money, along with a stock market listing, would be taken over by Trump Media after a merger. When the deal was announced in December, the two companies said in a statement that the investors would give the $1 billion in PIPE financing “upon consummation of their business combination.”
The merger was supposed to be finalized by no later than September 20. But because the merger is taking longer than expected to finish, the hedge funds that agreed to invest in the new company can back out if they want, experts who know about PIPEs said.
“Once the PIPE termination date has passed, investors are no longer required by contract to participate,” said Kristi Marvin, a former investment banker and founder of SPACInsider, which collects data on the SPAC market.
She said that some hedge funds might want to stick to the deal even if the merger doesn’t happen right away. But if an investor wants to get out after September 20, they won’t have to pay a fee.
Investors who want to stay in the PIPE deal might need to be persuaded to agree to a new deadline by Digital World.
Representatives for several investors in the PIPE agreement, who all declined to be named because the deal is still in the works, said they hadn’t decided what to do if the agreement ran out, but at least a few were on the fence about staying in the deal.
Representatives of the investors said that neither Digital World nor E.F. Hutton, the investment bank that set up the funding, had given any advice. When asked what was going on with the financing deal, one investor replied with an emoji of a person shrugging.
The future of the PIPE hasn’t gotten as much attention as the merger between Trump Media and Digital World, which has been put on hold while the Securities and Exchange Commission and federal prosecutors look into it.
The federal government is looking into possible wrongdoing between representatives of Digital World and Trump Media before the SPAC went public. They are also looking into the strange trading of Digital World’s stock before the merger was announced last October.
Last week, Digital World was close to having to shut down and give back the $300 million it had raised because it couldn’t get 65 percent of its shareholders to agree to give it one more year to finish merging with Trump Media. At the last minute, the investment group that created the SPAC agreed to put more than $2.8 million into a special bank account for the benefit of shareholders. This move put off the possibility of liquidation for at least three months and gave Digital World more time to get shareholder approval for a one-year extension.
Digital World could decide to get out of the current PIPE deal and try to make a new one. Unlike many PIPE deals that go along with SPAC mergers, the hedge funds that agreed to the Trump Media deal do not have to hand over any cash until the merger is complete.
Patrick Orlando, the CEO of Digital World and a supporter of the SPAC, did not respond to requests for comment. E.F. Hutton’s representatives also did not respond to requests for comment.
The PIPE agreement had good terms, but it was made when Digital World’s stock was doing well. Since its high point in March, it has dropped more than 70%. In the past few months, there have been developments in both civil and criminal investigations into Mr. Trump’s business dealings, political activities, and handling of classified documents. There have also been investigations into the SPAC merger and trading activity.
Truth Social, which started in February, says that it is an uncensored platform that won’t judge users based on what they think about politics. It started out as an alternative to Twitter, which banned Mr. Trump in January 2021 for breaking rules about inciting violence. Since then, it has become a place where conspiracy-theory-based posts are common and Mr. Trump sometimes shares them with his nearly four million followers.
Short-term, Trump Media might need to raise more money to stay in business. The company has raised about $37 million from investors who have not been named, including $15 million this year. It is not clear how much money it still has.
When asked about how much money it needs, Trump Media did not answer. But in an earlier email, a company spokeswoman said that The New York Times “should apologize for their continued slander and defamation of Truth Social.”