By Helen Coster and Sruthi Shankar
(Reuters) - The U.S. Securities and Exchange Commission allowed Donald Trump's media and technology company to merge with a blank-check acquisition vehicle in a deal that currently values the parent of his social media app Truth Social at as much as $10 billion.
The valuation is about half that of Elon Musk's much more popular social media company X and follows two years of setbacks in the Trump company's quest to complete a stock market listing.
It underscores how some investors, many of them fans of the former U.S. president, are ignoring Truth Social's losses and limited user base because of Trump's involvement.
The value assigned to the deal by the stock market has jumped more than threefold since January, as Trump tightened his grip on the Republication nomination for president. Trump will own between 58.1% and 69.4% of the combined company, depending on the extent to which investors back the deal.
Trump may divest his stake in Truth Social and cease any involvement in its management based on how his bid for president goes, Digital World Acquisition Corp, the shell vehicle merging with Trump's company, said in a regulatory filing on Wednesday.
The filing, which disclosed new information about the business of Truth Social parent Trump Media & Technology Group, was greenlighted by the SEC, allowing Digital World to set a vote for its shareholders to back and complete the merger.
Since Digital World inked its merger agreement with TMTG in October 2021, it has been the target of investigations by the U.S. Department of Justice, ousted its chief executive, and shook up its board. It also reached an $18 million settlement with the SEC over inaccurate disclosures.
Digital World shares rose 16% to $50.49 in afternoon trading in New York on Thursday. At this stock price, and assuming no Digital World shareholders exercised the right to redeem their shares, the combined company would be worth about $10 billion and Trump would own a 58.1% stake worth about $4 billion.
To be sure, Digital World also disclosed new obstacles to the deal being completed. One of them is former Digital World CEO Patrick Orlando, who helped create Digital World in its current form and controls the sponsoring entity behind it. Digital World said in the filing that Orlando may hold up the deal because he wants to receive additional compensation.
Orlando could not be immediately reached for comment.
Digital World also said that TMTG spent $38.5 million between its inception in February 2021 and September 2023, funded through borrowings, and that it may issue up to $65 million in convertible notes to avoid a liquidity crunch.
TMTG posted total revenue of $3.4 million in the first nine months of 2023, up from $237,000 a year earlier, according to the Digital World filing. Its operational loss was $10.6 million, down from $19.3 million a year earlier.
TMTG said that among its board directors once the deal is completed will be Trump's former National Security Council adviser Kash Patel, attorney and former Louisiana prosecutor W. Kyle Green, World Wrestling (NYSE:TKO) Entertainment co-creator Linda McMahon, Trump's former U.S. Trade Representative Robert Lighthizer, and Trump's son Don Jr. TMTG's chief executive is former U.S. lawmaker Devin Nunes.
FRACTION OF X'S USERS
TMTG was launched to connect Trump with his followers after he was cut off from major social media platforms following the Jan. 6, 2021, attack on the U.S. Capitol by his supporters.
Trump has 6.61 million followers on Truth Social, compared to the more than 88 million followers he had on X when the platform permanently suspended him, and the 87.4 million followers he currently has on that platform.
Digital World says Truth Social has so far had 8.9 million signups. X, by comparison, has more than half a billion monthly users, according to Musk.
On Nov. 19, the San Francisco-based app reversed its position under Musk, the self-proclaimed “free speech absolutist” who bought Twitter on Oct. 2.
In August, Trump broke a pledge to stick exclusively with Truth Social and posted on X his mug shot from his booking at Fulton County Jail in Georgia. He has not posted on X since, using Truth Social as his primary platform to reach voters.