By Helen Coster
NEW YORK (Reuters) -Digital World Acquisition Corp, the SPAC that plans to merge with former U.S. President Donald Trump's media and technology company, said this week it would return to investors $533 million raised for the deal, after some have already backtracked on $467 million of commitments.
The development means the end of the so-called private investment in public equity (PIPE) transaction that would have delivered Trump Media & Technology Group (TMTG), the operator of Trump's Truth Social platform, $1 billion as part of its merger with Digital World.
A SPAC (special purpose acquisition company), or blank-check firm, is a publicly listed shell company that raises funds to merge with a private company.
Digital World raised the $1 billion PIPE last year but failed to complete the merger with TMTG by a September 2022 deadline, as U.S. financial regulators held up the deal over Digital World's disclosures to investors. That gave the PIPE investors the right to cancel their commitments.
TMTG CEO Devin Nunes said in a press release that terminating the PIPE was "in the best interest of TMTG's equity holders and completing our merger with DWAC as soon as possible."
A TMTG spokesperson said in a statement on Thursday that the PIPE's termination was "a key step toward completing our merger." She did not respond to a question on why terminating the PIPE ahead of the merger was positive for TMTG.
An Aug. 9 amendment of TMTG's deal with Digital World called for the unwinding of the PIPE. This amendment gives Trump new shares in Digital World with more voting power.
The unwinding of the PIPE would leave Digital World with the $293 million cash it had raised in its initial public offering in September 2021, which is set to go to TMTG upon the deal's closing. That pot of money could also shrink if investors opt for redemptions.
The TMTG spokesperson did not respond to a question on whether the company plans to raise additional funds. TMTG previously raised $22.8 million in financing from private investors, Reuters reported last October.
Digital World and TMTG have tweaked their merger agreement so that either side can terminate the deal between Oct. 31 and Nov. 21, if their boards no longer believe the merger will benefit shareholders. Trump controls 90% of TMTG, according to a Feb. 2, 2021 services agreement.
Digital World has faced several challenges since its October 2021 deal with TMTG. It has been the target of investigations by the U.S. Department of Justice and the Securities and Exchange Commission, ousted its chief executive, and shook up its board.
In September, Digital World investors voted to give an extension of up to one year to complete the TMTG deal, the deadline for which had been pushed back several times. It remains unclear when and if Digital World will ask its shareholders to vote on the deal with TMTG, a necessary step for its completion.
Shares of Digital World dropped 2% on Thursday to $15.54, far below their peak of around $97 a share in March 2022.