Trump Media sued by co-founders ahead of DWAC merger, a potential setback for lucrative deal

previous president Donald Trump He was accused in a lawsuit on Wednesday of trying to “substantially dilute” the value of his property. Stock shares in Social media The company is owned by the company's founders, which could deprive them of hundreds of millions of dollars in profits.

Partnership, United Atlantic Ventures claims so Trump Media and Technology Group It engaged in an “illegitimate eleventh-hour maneuver” to dilute Drones’ minority stake in Media The company, the court filing says.

The lawsuit filed in Delaware Chancery Court comes earlier than planned merger From TMTG with a shell company called Digital World Acquisition Companywhich could result in the combined entity's shares being publicly traded.

If DWAC shareholders approve the merger next month, Trump's 90% stake in TMTG could be valued at more than $3 billion, given DWAC's current stock price.

UAV is a partnership between Andy Letinsky and Wes Moss, who initially approached Trump with the idea of ​​creating Trump Media in February 2021, after the former president was banned from Twitter and Facebook in the wake of the deadly Jan. 6 Capitol riot.

Both Letinsky and Moss were contestants on Trump's TV show “The Apprentice.”

TMTG later built and launched Truth Social, the social media platform that Trump uses almost exclusively to communicate with the public.

The planned merger comes at a time when Trump, the leading candidate for the Republican presidential nomination, was ordered to pay more than $500 million in civil judgments in New York, related to court rulings for commercial fraud and defamation of writer E. Jane Carroll. .

“The attempt here is to deny them the deal,” said Christopher Clark, a lawyer for the drone company.

“It's not like they went out and bought a lottery ticket,” Clark said of the co-founders. “They actually went out and did the work, created Truth Social, and now the beneficiary of that, Donald Trump, doesn't want to pay.”

“It's not a unique story, unfortunately,” Clark said, referring to Trump's notorious practice of challenging bills submitted by contractors and lawyers.

CNBC requested comment from spokespersons for Trump, TMTG and DWAC about the lawsuit.

“Former President Donald J. Trump…causes TMTG to not only contest UAV's vested right to 8,600,000 shares or 8.6% of TMTG's issued and outstanding shares, but also attempts to materially impair UAV's interests in connection with the impending merger,” the motion says in Delaware suit.

This proposal claims that UAV's current 8.6% stake in Trump's company would be diluted to less than 1% as a result of TMTG's board of directors approving an eight-fold increase in the total number of authorized shares in the company, from 120 million shares to 1 billion shares.

“There is no legitimate business purpose for licensing the billion share or creating non-voting shares in the face of the pending merger, particularly because any unissued TMTG shares would be canceled in the merger,” UAV's proposal reads.

“The only plausible reason for TMTG to allow this massive new block of stock and create non-voting stock is so Trump can dilute the drones and get the lion’s share of the merger consideration for himself,” the proposal says.

UAV's lawsuit against TMTG, which seeks injunctive relief against the mitigation efforts, is currently closed in a Delaware court, which as a rule keeps complaints off its public docket until the parties agree to any necessary amendments.

But UAV's motion asking the judge to expedite the case is public. This motion details the claims in the complaint.

In October 2021, TMTG and DWAC, a so-called special purpose acquisition company, announced a plan to merge.

This merger has been delayed for more than two years due to investigations by the Securities and Exchange Commission and the Department of Justice, among other factors.

But earlier this month, the SEC said the merger registration statement was effective, essentially giving the green light to the SPAC merger. DWAC shareholders are scheduled to vote on potential approval of the merger on March 22.

DWAC appears to have been aware such a lawsuit might be coming, according to a Feb. 14 filing with the Securities and Exchange Commission.

“Drones also notified TMTG and the holder of the Convertible Notes TMTG that it may take action to order the consummation of the business combination,” the DWAC filing said.

“Although TMTG advised DWAC that it firmly believes that neither UAV nor Mr. Cohen has any anti-dilution or consent rights in connection with the business combination, if such claims involve the issuance of additional shares in connection with the business combination and such claims are considered Filing: “If such claims are determined to be valid, the settlement of such claims could have a material adverse monetary and dilutive effect (both from an economic and voting standpoint) on the combined entity and its shareholders.”