CoFounders Sue Trump Media, Threatening Proposed Truth Social Merger

On March 1st, 2024, The New York Times reported that a partnership owned by Wes Moss and Andy Litinsky filed a lawsuit against Trump Media in the Delaware Chancery Court. They argue that Donald Trump—the Former President and owner of Trump Media—is improperly trying to dilute their shares in the company. Within this article, our West Palm Beach business litigation attorney discusses the dispute.

Background: Proposed Trump Media Merger 

A merger was announced  involving Trump Media & Technology Group (Trump Media), the parent company of Truth Social, and a special purpose acquisition company (SPAC). A merger is a strategy of combining two or more companies into a single entity—most often to expand market share, diversify products or services, and/or achieve economies of scale. The ultimate goal of the merger is to take Trump Media public. The total value of the corporate entities in question reach into the billions. Indeed, some estimates put the expected post-merger value of Trump Media at $4 billion.

 Know the Term: A special purpose acquisition company (SPAC) is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO) with the intention of acquiring an existing company. It is a relatively new business strategy.

 Allegations: An Improper Effort to Dilute Truth Social Shares 

The merger faced scrutiny and legal challenges over allegations of an improper effort to dilute Truth Social shares. Wes Moss and Andy Litinsky filed a lawsuit in Delaware on the grounds that the terms of the proposed merger unfairly favored certain insiders and unfairly undervalued their interests in the business. The commercial lawsuit is currently pending in the Delaware Court of Chancery. No merger can be finalized until the litigation is resolved.

Dilution of Shares and Mergers and Acquisitions (M&A): Understanding the Claim 

M&A transactions are “high risk” times for commercial disputes, especially conflict between shareholders and corporate leadership. Dilution of shares is a critical concept in the context of mergers and acquisitions (M&A). Dilution occurs during a merger or acquisition when the transaction results in the issuance of new shares. Depending on the structure of the transaction, some (or all) shareholders could have their stake diluted.

Dilution of shares, while not inherently a violation of shareholder rights, can become contentious if it disproportionately affects certain shareholders or is conducted without proper disclosure and approval processes. It largely depends on the company’s governance policies and the legal framework governing shareholder rights and corporate actions. In some cases, a shareholder or certain class of shareholders may have a claim against the company.

 Contact Our Commercial Litigation Attorney in West Palm Beach Today

At Pike & Lustig, LLP, our West Palm Beach commercial litigation attorney is standing by, ready to protect your rights. If you have any questions about a business law claim, our firm is here to help. Contact our business law team today to arrange your confidential, no commitment case review. With a law office in West Palm Beach, we handle business litigation matters all across South Florida.

Source:

nytimes.com/2024/03/01/business/trump-media-digital-world-merger.html