Former President Trump on the Brink of a Multi-Billion Dollar Windfall Amidst Financial and Legal Pressure
Former US President Donald Trump is on the verge of securing a substantial financial boost through his social media platform, Truth Social, which is in the process of going public. The Trump Media & Technology Group (TMTG), the owner of Truth Social, has been working towards this milestone for several years despite encountering various legal and regulatory hurdles.
If shareholders approve the merger between TMTG and Digital World Acquisition Corp. (DWAC) in the upcoming Friday vote, Trump will acquire a significant stake in a publicly-traded company. According to filings, he is expected to own at least 58.1% of the new public entity.
Given the current market price of DWAC’s shares, which is around $43, Trump’s stake would be worth over $3.4 billion on paper. However, experts advise caution, as this potential windfall may not immediately alleviate Trump’s ongoing financial and legal challenges.
Practical, Financial, and Legal Challenges
Although Trump’s stake in the new public company presents a significant paper gain, experts caution against expecting a quick resolution to his immediate financial pressures. Matthew Kennedy, senior IPO market strategist at Renaissance Capital, explains that Trump will not be able to monetize the stake right away due to various practical, financial, and legal reasons.
Trump is currently facing a Monday deadline to pay a $464 million bond in New York’s civil fraud case or risk losing his golf course and private estate north of Manhattan. In this context, the impending windfall from TMTG may not provide an immediate solution to this pressing issue.
Lock-up Periods and Liquidity
Moreover, Trump’s shares in the new public company are not as liquid as they appear. In fact, they may be less liquid than his real estate holdings. The market is believed to be overvaluing TMTG based on its fundamentals, making it difficult for Trump to sell or even pledge these shares as collateral.
Charles Whitehead, a law professor at Cornell Law School, points out that the stock price is a bubble and no rational investor would take it at face value. TMTG’s revenue for the third quarter amounted to just $1.1 million, while the company posted a loss of $26 million during that period. Additionally, Truth Social’s user base has been shrinking year-over-year.
Jay Ritter, a finance professor at the University of Florida, agrees that the current market price is not justified and qualifies as a meme stock. Meme stock investors typically buy based on the greater fool theory, hoping to sell the stock to an even bigger fool at a higher price in the future.
Insider Lock-up Periods
Even if Trump found a buyer for his shares, experts say he is unlikely to be allowed to sell or pledge them right away due to lock-up periods. Key shareholders, including the management team, have agreed not to sell their common stock for six months to maintain stability within the company. This lock-up agreement also restricts them from lending, offering, pledging, or encumbering their stock during this period.
If the share price stays above $12 for a certain timeframe after the deal closes, insiders may be able to sell or pledge their stock 150 days later. However, additional lock-up restrictions contained in an amended charter may apply to Trump and other significant shareholders, preventing them from selling or pledging their shares immediately post-merger.
Amending the Charter and Obtaining Bank Loans
If Trump were to attempt to amend the charter to lift these restrictions, he would need to disclose his intentions publicly. Any such move could impact potential buyers of the stock and could be problematic if not handled transparently.
Furthermore, even if Trump managed to sell or pledge his shares despite the lock-up periods and charter restrictions, there is no guarantee that any bank would accept these shares as collateral for a loan. The uncertainty surrounding TMTG’s future financial performance may deter banks from doing so.
In conclusion, while Trump’s impending stake in TMTG presents a significant paper gain, it may not provide an immediate solution to his financial pressures due to various practical, financial, and legal challenges. These include lock-up periods, stock market valuation concerns, and uncertainty regarding the new public company’s ability to generate revenue and profitability.
