Trump and Technology Group (TMTG) is an emerging company owned by former Trump in the United States that aims to create an "authentic social platform" called Truth Social. However, the birth of this platform did not go smoothly, not only did it face multiple difficulties such as a financial crisis, regulatory investigations, and user churn, but it also failed to complete its merger plan with Digital World, a special purpose acquisition company (SPAC), which is one of the important ways for it to obtain funding.
A SPAC is a type of shell company that raises capital by going public and then looking for an unlisted company to incorporate, resulting in a rapid listing of the latter. Last October, TMTG announced a merger agreement with Digital World, Inc., with an expected transaction value of $1.5 billion. The news sparked an enthusiastic reaction from the market, with Digital World's share price soaring as high as $175 at one point, well above its $10 issue price.
However, there are many uncertainties behind the merger. First, when Digital World announced the merger agreement, the $1 billion private equity investment (PIPE) it had had had all gone, meaning it couldn't provide enough cash for TMTG. To make up for this shortfall, Digital World had to take a number of risky measures, including issuing $50 million worth of promissory notes and entering into warrant subscription agreements with certain institutional investors. While these measures can bring some capital to digital world companies, they also increase their debt burdens and the risk of equity dilution.
Second, Digital World's planned merger with TMTG has been shelved for nearly two years due to numerous disclosures of misconduct by federal investigative agencies before the two companies formally signed the merger agreement. According to reports, when Digital World announced the merger agreement, it did not disclose important information such as TMTG's financial status, business model, management team, etc., nor did it disclose the equity and control of Trump and his family in TMTG, which may have violated the provisions of US law. Although the U.S. Exchange Commission has reached a settlement with Digital World Inc. on the matter, the U.S. Financial Industry Regulatory Authority has yet to provide a similar treatment, creating uncertainty about the merger's process.
In addition, TMTG itself is being investigated by federal prosecutors in New York for alleged violations of money laundering-related regulations. Federal authorities are reviewing $8 million worth of loans that pass through the Caribbean and may be from unnamed entities linked to Russia** Vladimir Putin. This investigation could have a serious impact on TMTG's reputation and legitimacy, as well as its merger with Digital World Inc.
Of course, in the absence of a merger with Digital World and the resulting cash inflows, TMTG and its Truth social app still face liquidity issues. As recently reported by Axios, the platform generated just $3.38 million in revenue for the first nine months of 2023, with a net loss of $49 million during that period. Importantly, as of September 2023, Truth Social had only $1.8 million in cash on hand and total liabilities of $60.5 million. You know, the TMTG has sternly questioned the veracity of these reports. The platform aims to have 81 million users by 2026, compared to about 6.5 million users today.
To sum up, TMTG's road to consolidation is not smooth, and it needs to overcome difficulties and challenges on many fronts in order to realize its dream of becoming an empire. And for Digital World, the success of its merger with TMTG will also determine its future fate. February** Dynamic Incentive Program