Trump Media, DWAC merger at risk as co-founders file suit over stock dilution (DWAC)

Shares of Digital World Acquisition (NASDAQ:DWAC) have shed more than 12% Thursday as an impending merger with Trump Media & Technology Group, or TMTG, is at risk amid allegations that TMTG tried to increase the number of shares in TMTG in an effort to dilute the ownership stake of its founding partners.

Digital World Acquisition (DWAC) is set to merge with TMTG, the parent company of former president Donald Trump’s social network, Truth Social.

According to the lawsuit filed by Andy Litinsky and Wes Moss, co-founders of United Atlantic Ventures, TMTG attempted to increase the number of its outstanding shares to 1 billion from 120 million which would effectively dilute the ownership of United Atlantic Ventures to less than 1% from 8.6%, previously.

United Atlantic Ventures, or UAV, was formed by Litinsky and Moss to launch TMTG and Truth Social. Trump was given 90% of TMTG, UAV was awarded 8.6%, and the remaining 1.4% was given to an attorney on the deal. According to the lawsuit, UAV did not receive any payment for any work done for TMTG but was anticipating a stake worth roughly $340M in the merged DWAC/TMTG business. Trump would receive a stake worth $3.5B. Under the conditions of an increased stock offer, however, UAV’s ownership would be drastically reduced.

For DWAC, a protracted and expensive lawsuit might make a merger problematic. According to a filing with the U.S. Securities and Exchange Commission, DWAC alleges the lawsuit could lead to “substantial legal costs, distract management, and have adverse effects on the business operations and financial health of TMTG and/or the combined entity.” UAV could also seek to block or “enjoin” a merger.