Former President Donald Trump could soon receive a windfall valued as much as $3.5 billion, with shareholders of a publicly traded funding partner voting Friday on whether to merge with his Trump Media & Technology Group.
The vote is taking place about one month after the two companies received regulatory approval to proceed with the long-delayed merger.
If shareholders of Digital World Acquisition Corp. (DWAC) approve, the businesses could combine soon afterward, putting the former president's Truth Social social media platform on the stock market. Trump created Truth Social as a conservative-focused social media service after he was banned from Twitter, now known as X, and other platforms following the January 6th riot.
Digital World is a special purpose acquisition company, or SPAC, a shell company that is created to take a private business public without conducting an initial public offering.
The new company would be renamed Trump Media & Technology Group Corp. and trade under the stock ticker DJT, the same letters as Trump's initials, according to regulatory filings.
Recent reports indicate that Trump could potentially profit significantly from an upcoming business deal, as he stands to control a substantial portion of the merged company. With 78.8 million shares, Trump's stake in the new entity could be valued at around $3.5 billion based on current stock prices.
Interestingly, some shareholders of the company, DWAC, seem to be supporters of Trump. A group on Truth Social with over 7,850 members has been actively discussing the stock and its future, suggesting that Trump's involvement may be influencing the stock's performance, especially as he moves closer to a potential presidential nomination.
This financial windfall comes at a crucial time for Trump, who is facing mounting financial challenges. His legal team has revealed difficulties in posting a bond to appeal a $460 million judgement in a civil fraud case by March 25, risking potential property seizure by New York state.
Additionally, Trump is dealing with substantial legal expenses, with over $8.5 million spent on legal fees in 2024 alone. His political action committees have also faced financial strain, spending more than they raised last year, including nearly $50 million on legal defenses.
Trump's $3.5 Billion Stake in Trump Media Faces Lock-Up Restrictions
Despite holding a $3.5 billion stake in Trump Media, former President Donald Trump faces restrictions on selling his shares due to a lock-up provision. This provision prevents major shareholders from selling their stock for at least six months, as outlined in a DWAC regulatory filing.
Lock-up provisions are common in the financial industry to prevent large investors from flooding the market with shares immediately after a company goes public. In Trump's case, this means he cannot use his stock as collateral for loans or sell them for cash until the lock-up period expires.
Can Trump circumvent the lock-up restrictions?
While there is a possibility that Digital World could waive the lock-up agreement before the deal closes, legal experts suggest that it is more likely for the new company's board to consider altering the agreement post-closure. Until then, Trump's hands are tied when it comes to leveraging his stake in Trump Media.
Analysis: Potential Legal Scrutiny for Board Members
With the new board considering a decision that could impact shareholders, there is a possibility of legal scrutiny towards the directors. They would be required to demonstrate that the decision is in the best interest of the shareholders.
Exploring Trump's Potential Stock Sale
While Trump could sell his stock after the six-month lock-up period, it is uncommon for major shareholders to liquidate their entire stake in a single transaction. Such a move could create doubts among other investors regarding the company's stability and saturate the market with available shares, potentially causing a sharp decline in the stock price.
Typically, major stockholders and company founders opt to sell their shares gradually over time to prevent significant fluctuations in the stock price.
Assessing the Value of Trump's Stake
The estimated value of Trump's stake at $3.5 billion is calculated based on the current trading price of DWAC and the anticipated number of shares he will possess post-merger.
However, investing in publicly traded companies carries inherent risks, including the possibility of share devaluation. Once Trump Media Group goes public, it may encounter increased scrutiny from a broader investor base that might not perceive the same value in the company as DWAC's current shareholders.
Experts Question Valuation of Trump Media Group
"In the short term, if a lot of people say, 'I don't really care what it's worth, I'm just gonna keep buying it, and I'm gonna keep propping it up,' you can do that for a reasonable period of time," said Harry Kraemer, a professor specializing mergers and acquisitions at Northwestern University's Kellogg School of Management. That "almost defies economic logic, but there we are," he added.
For one, the Trump Media Group's main asset is Truth Social, which is lagging far behind rival social media platforms such as Facebook, X and Instagram in both users and advertisers. Truth Social is filled with advertisements for faux-medical cures, Trump-themed merchandise and right-wing companies.
Trump Media booked $3.7 million in revenue in the first nine months of 2023 and "expects to incur significant losses into the foreseeable future," according to a regulatory filing. Unless it can rapidly boost its revenue or turn a profit, it could have difficulty maintaining its lofty valuation, experts said.
"Given the fact that their sales last year were less than $5 million, and they're losing significant money, it is hard to believe that the long-term economic value of this company could even be as high as $100 million," Kraemer said. "So talking about billions is absolutely ridiculous from an economic standpoint."
Trump could face significant risks if he decides to sell his stock after the lock-up provision expires. Selling a large stake could potentially lead to a decrease in the stock value, subsequently reducing the value of his remaining shares. This could happen at a time when he may require additional funds to cover legal expenses or support his campaign.
"As soon as people catch wind of his plans to sell the stock, there's a high likelihood that others will follow suit, causing the stock to plummet," Kraemer speculated.
