SEC Clears Trump Social Media Deal
U.S. Securities and Exchange Commission approves merger of Trump’s media and technology company with a blank-check acquisition vehicle, valuing Truth Social’s parent company at $10 billion. This is a significant milestone for the company, which has faced numerous setbacks in its attempt to go public. The valuation is about half of Elon Musk’s popular social media company X, despite the limited user base and losses incurred by Truth Social.
However, the lower valuation can be attributed to the involvement of former U.S. President Donald Trump, who currently owns between 58.1% and 69.4% of the combined company. Trump’s involvement has attracted a significant number of investors, despite the company’s lackluster performance.
According to the regulatory filing submitted by Digital World Acquisition Corp, the shell company merging with Trump’s company, Trump may divest his stake in Truth Social and cease his involvement in its management depending on the outcome of his bid for president. This adds a new layer of uncertainty to the deal and may impact its valuation in the future.
The filing also revealed that Digital World has been the target of investigations by the U.S. Department of Justice and has faced significant internal issues, including the ousting of its CEO and board shake-ups. It also reached a settlement with the SEC over inaccurate disclosures.
The recent approval from the SEC will allow Digital World to set a vote for its shareholders to back and complete the merger. This vote will determine whether the deal will go through and if Trump will retain his majority ownership in the company.
Digital World’s stock price rose by 16% to $50.49 in afternoon trading in New York on Thursday following the SEC approval. At this stock price and assuming no Digital World shareholders exercise the right to redeem their shares, the combined company would be worth around $10 billion, with Trump’s stake valued at approximately $4 billion.
However, the filing also revealed potential obstacles to the deal’s completion, including Digital World’s former CEO Patrick Orlando, who controls the sponsoring entity behind the company. Orlando has demanded additional compensation, which could delay or hinder the deal’s completion.
Additionally, TMTG, the parent company of Truth Social, has incurred significant losses since its inception in February 2021. As of September 2023, it had a total revenue of $3.4 million and a loss of $10.6 million. To avoid a liquidity crunch, the company may issue up to $65 million in convertible notes.
The filing also provided insight into TMTG’s board of directors, which includes former Trump administration officials and Trump’s son Don Jr. Their involvement in the company may attract more investors, given their close ties to Trump.
Truth Social was launched in response to Trump’s ban from major social media platforms following the Jan. 6, 2021, attack on the U.S. Capitol by his supporters. However, the app has a fraction of the users that X has, with Trump currently having 6.61 million followers on Truth Social compared to 87.4 million on X.
Despite the limited user base, Trump has been actively using Truth Social as his primary platform for reaching out to his followers. However, he broke his pledge to stick exclusively with the app in August when he posted his mug shot from his booking at Fulton County Jail in Georgia on X. He has not posted on X since, choosing to use Truth Social as his main platform.