Digital World Acquisition (NASDAQ:DWAC) stock fell 22% in pre-market trading after reports the blank check company did not win approval to extend its merger deadline with Trump Media and Technology Group (TMTG), which owns former President Donald Trump’s Truth Social. Before the market opened, DWAC stock was trading at $19.75 with a market capitalization of about $750 million. The blank check acquisition company was planning a $1.3 billion cash infusion into TMTG.
DWAC signed a deal last October to take TMTG public, but the Securities and Exchange Commission (SEC) has yet to approve the transaction.
The Digital Truth About DWAC Stock
Digital World CEO Patrick Orlando said most DWAC stock is owned by small shareholders and the company was having trouble getting them to vote on its proposal. The extension needs 65% approval to go through. Failure to either complete the deal or get an extension could lead to DWAC’s liquidation. Major institutional investors in DWAC include Lighthouse Investment Partners, run by Sean McGould, and Pentwater Capital Management, run by investment manager Mal Halbower.
The extension could prove meaningless because the $1 billion private investment in public equity (PIPE) that is part of the deal expires Sept. 20. TMTG has been borrowing money to stay in business pending the merger, but the deal also carries a $50 million debt limit the company is fast approaching.
DWAC went public last September specifically to merge with TMTG. Regulators have been investigating dealings between the two companies prior to DWAC’s formation and the company’s underlying finances.
In addition to legal questions, the merger also faces market questions. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has yet to put Truth Social’s app on its Google Play Store, citing a lack of an effective moderation system and the prevention of physical threats and incitements to violence.
What Happens Now
If DWAC is liquidated, shareholders would get $10 per share of cash. It’s unclear how long Truth Social could stay alive if the DWAC merger fails.
At the time of publication, Dana Blankenhorn directly owned shares in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.