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Trump could earn $3.5 billion from Truth Social IPO. But it can be difficult to harness the money.


Former President Donald Trump could soon receive a windfall valued at $3.5 billion, with shareholders of a publicly traded financial partner approving a merger with his Trump Media & Technology Group on Friday.

The approval took place Friday morning, according to a live broadcast of the shareholder vote. Shares of Digital World Acquisition Corp., a so-called “blank check” company that will now merge with Trump’s media group, jumped 5.5% in morning trading.

With approval of the deal by Digital World Acquisition Corp. shareholders. (DWAC), the companies could soon unite, taking the former president’s Truth Social social media platform public. Trump created Truth Social as a conservative-focused social media service after he was elected. banned from Twitternow known as X, and other platforms following the January 6 riots.

Digital World is a special purpose acquisition company, or SPAC, a shell company created to take a private company public without conducting an initial public offering.

The new company will be renamed Trump Media & Technology Group Corp. and will trade under the ticker symbol DJT, the same letters as Trump’s initials, according to regulatory filings.

Trump struggles to secure $464 million bail in civil fraud case


Trump is expected to make a fortune from the pending deal, given that he will control 78.8 million shares of the newly merged company, or about 58% of the company. Based on DWAC’s current stock price, this stake could be worth as much as $3.5 billion.

Some DWAC shareholders appear to be Trump supporters, as a group on Truth Social includes more than 7,850 users who have communicated about the stock and its prospects. This raises the possibility that DWAC’s stock is currently being boosted by Trump supporters at a time when Trump is moving closer to securing the Republican Party’s nomination for president.

This windfall could fall into Trump’s pockets at a time when his financial pressures are increasing. On the one hand, Trump’s lawyers said he had been unable to get bail to appeal a judgment of more than $460 million in his civil fraud case. If he fails to raise the money by March 25, New York State could seize Trump’s assets to satisfy the order.

Trump also faces hefty legal bills in the other lawsuits filed against him, including more than $8.5 million in legal fees so far in 2024 alone. His political action committees last year spent more than he collectedin part because of nearly $50 million in legal fees for the president’s ongoing legal defense.

But while a $3.5 billion stake in a publicly traded company could help alleviate some of those financial pressures, it’s unlikely to immediately help Trump. Indeed, he and other large shareholders are subject to a so-called “lock-up” clause which prohibits him from selling his shares for at least six months.

Here’s what you need to know.

Why can’t Trump immediately sell his stake in Trump Media?

This is due to a lock-up clause for major shareholders, according to a DWAC regulatory filing.

Lock-up provisions are a common restriction on Wall Street intended to prevent large investors from selling their shares in a company soon after it goes public. If they were to occur, such large stock sales could cause a company’s stock to fall.

Trump probably won’t be able to use the shares to get a loan either. Indeed, the DWAC regulatory filing states that founding investors cannot sell, lend, give away or encumber their shares for six months after the transaction closes.

Legal experts say “encumber” is a powerful word that could prevent Trump from using the shares as collateral to raise cash before six months have passed.

Could Trump sell before the lock-up expires?

It is possible that Digital World will waive the lock-up agreement before the transaction closes. Or, more likely according to some legal experts, the board of directors of the new company could decide to modify the lock-up agreement once the transaction closes.

Such a decision by the new board of directors could, however, expose these directors to legal scrutiny. They should show that they are doing it in the interests of shareholders.

Could Trump sell his shares once the six months are up?

Yes, but major shareholders generally do not sell their entire stake in one sale. Indeed, a transaction of such magnitude could shake other investors’ confidence in the company’s stability and flood the market with available shares, which could cause the company’s stock price to fall.

Major shareholders and company founders typically sell their shares in small amounts over time to avoid destabilizing the stock price.

Is Trump’s stake really worth $3.5 billion?

This figure is based on DWAC’s current price and the number of shares Trump will own after the merger closes.

But any publicly traded investment carries risks, including the possibility that shares will lose value. Once publicly traded, Trump Media Group may face greater scrutiny from more investors, who may not see the same value in it as DWAC’s current ownership .

“In the short term, if a lot of people are saying, ‘I don’t care what it’s worth, I’m just going to keep buying it and I’m going to keep supporting it,’ you can do that for a reasonable amount of time.” , said Harry Kraemer, a professor specializing in mergers and acquisitions at the Kellogg School of Management at Northwestern University. This “almost defies economic logic, but here we are,” he added.

On the one hand, Trump Media Group’s main asset is Truth Social, which lags far behind rival social media platforms such as Facebook, X and Instagram, both in terms of users and advertisers. Truth Social is full of ads for fake medical cures, Trump-themed products, and right-wing companies.

Trump Media reported $3.7 million in revenue during the first nine months of 2023 and “expects to incur significant losses for the foreseeable future,” according to a regulatory filing. Unless it can quickly grow revenue or turn a profit, it could struggle to maintain its high valuation, experts say.

“Given that their sales last year were less than $5 million and they are losing a lot of money, it is hard to believe that the long-term economic value of this company can even reach $100 million” , Kraemer said. . “Talking about billions is therefore absolutely ridiculous from an economic point of view.”

Again, Trump also faces risks if he sells shares once the lock-up clause expires. For example, if he sells a large share, the stock value could fall, causing the value of his remaining shares to decline at a time when he may need more money to pay his legal fees or finance his campaign.

“As soon as people know he’s going to sell his stock, they’re going to want to sell his stock, and the stock is going to crash,” Kraemer predicted.

The Associated Press contributed to this report.


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