The social media company behind former President Donald Trump‘s Truth Social is in danger of its $1 billion financing deal crumbling by next week.
The New York Times reported Thursday that the deal, which was agreed to by about three dozen hedge funds, along with other wealthy investors, hits a crucial deadline on September 20.
On that date, those investors can technically walk away – according to experts the Times spoke with – because a promised merger didn’t take place.
The $1 billion financing arrangment is known as a PIPE – a private investment in public equity – and would be given to Trump Media & Technology Group, the parent company of Truth Social, once it merged with Digital World Acquisition Corp.
Digital World is a shell company, a special purpose acquisition company or SPAC.
A SPAC is listed on the stock exchange for the purpose of aquiring a private company.
The social media company behind former President Donald Trump ‘s Truth Social is in danger of its $1 billion financing deal crumbling by next week
The New York Times reported Thursday that the deal, which was agreed to by about three dozen hedge funds, along with other wealthy investors, hits a crucial deadline on September 20
In this case, Digital World raised about $300 million in an initial public offering last September.
Then the $1 billion in PIPE financing would flow into Truth Social ‘upon consummation of their business combination’ the companies said in a December press release.
‘$1 billion sends an important message to Big Tech that censorship and political discrimination must end. America is ready for TRUTH Social, a platform that will not discriminate on the basis of political ideology,’ Trump said in the release. ‘As our balance sheet expands, TMTG will be in a stronger position to fight back against the tyranny of Big Tech.’
In the nine months since, the companies caught the attention of federal investigators who are looking at alleged improper communications between Trump Media and Digital World before the SPAC’s public offering and unusual trading before the merger was announced.
Last week, Digital World came close to having to liquidate the $300 million it raised because 65 percent of shareholders didn’t agree to a one-year extension to get the merger worked out.
Now that deadline has been pushed back three months – but that’s just to get shareholders to agree to the one-year extension.
In the meantime, the $1 billion in hedge fund financing could go bust because investors can walk away without penalty if the September 20 deadline passes and no merger is completed.
‘Once the PIPE termination date passes, the investors are no longer contractually bound to participate,’ Kristi Marvin, the founder of SPACInsider, told The Times.
Investors who The Times spoke with, who declined to be identified, expressed ambivalence about remaining in the deal.
One individual, the newspaper reported, replied with a shrug emoji.
The $1 billion was never going to funnel into Truth Social until the merger was completed, meaning the short-term financial health of the Trump-backed social media company is in question.
The Times reported that Truth Social raised $37 million from unnamed investors, including $15 million this year, but it’s unclear how much of that money remains.
Representatives for Trump Media & Technology Group and Digital World did not immediately respond to requests for comment.