October 7, 2022

StrategisChhr

Skillful Business Crafters

Donald Trump’s social media start-up raises $1bn

Donald Trump’s social media start-up has raised $1bn from unidentified investors as it presses ahead with plans to go public via a merger with a special purpose acquisition company.

Trump Media and Technology Group said on Saturday that it had raised $1bn in private investment in public equity (Pipe) financing, but did not name any investors.

In October, the former US president announced the launch of Truth Social, a social media platform with no existing app that intends to list through a Spac merger in New York. Spacs work like blank cheques, raising money from investors and listing on the stock market, with the promise of finding an attractive private company to merge with.

The move comes as Trump remains banned from Twitter, Facebook and YouTube following the January 6 attack on the US Capitol. The frenzied Spac market has also cooled significantly in recent months.

Trump said: “$1 billion sends an important message to Big Tech that censorship and political discrimination must end.”

“As our balance sheet expands, TMTG will be in a stronger position to fight back against the tyranny of Big Tech,” he added.

The start-up, which Trump chairs, will merge with blank cheque company Digital World Acquisition Corp, which is run by Patrick Orlando. The Spac raised $293m when it listed on the Nasdaq exchange in September. Eleven hedge funds, including Saba Capital and DE Shaw, led by prominent Democratic party donors, participated in the offering, according to regulatory filings.

Pipe investors are private institutions which are shown the Spac’s target company before the deal is announced. Their investment is considered a crucial vote of confidence in the merger.

Shares of Digital World have soared well above their $10 listing price as high as $94 in anticipation of the Trump media venture, generating millions for the hedge fund group.

The deal’s Pipe financing, which came in the form of convertible preferred stock, far exceeded the Spac’s IPO proceeds. The conversion price was set at a 20 per cent discount to the Spac’s five-day trading average share price before December 1, which sets the conversion price at roughly $35.

Typically, Pipe investments are announced alongside the business combination. However, because Digital World has waited to raise institutional capital, it has been able to take advantage of the hype to sell the Pipe shares at far higher than the traditional $10 per share price.

The Pipe’s stock price may increase or decrease depending on how Digital World trades and the proceeds between the Spac and the Pipe are expected to provide $1.25bn to TMTG after expenses. The Spac shareholders will have the customary option to retrieve their investment prior to the merger closing if they request.

TMTG’s Truth Social platform has no app or business plan but describes itself as allowing conversation “without discrimination on the basis of political ideology”.

https://www.ft.com/content/e73da8fb-699d-4997-acdc-cb595918659b