Trump is about to get $3 billion richer after social media company goes public. But it won’t solve his cash crunch
Investors have approved a deal on Friday to make Truth Social owner Trump Media a publicly traded company.
The green light from shareholders clears a major hurdle for a long-delayed merger that will generate a multi-billion dollar windfall for former President Donald Trump at a time when he’s facing immense financial and legal pressure.
According to a preliminary vote total announced during the meeting, a majority of shareholders of Digital World Acquisition Corp. voted in favor of the deal to merge with Trump Media. The companies have indicated the merger could close as soon as early next week.
Republican presidential candidate former President Donald Trump speaks at a campaign rally, March 9, in Rome Georgia.
Mike Stewart/AP via CNN Newsource
The new company will be called Trump Media & Technology Group and trade under the ticker DJT, Trump’s initials. It will own Trump’s struggling social media platform Truth Social.
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Shareholders voted to approve Trump Media’s merger with a blank-check company, following years of legal and regulatory obstacles. Trump will own a dominant stake in a public company, with shares worth more than $3 billion at current market prices.
However, experts tell CNN there are numerous practical, financial and legal reasons why this deal is unlikely to solve Trump’s imminent cash crunch.
“President Trump won’t be able to monetize that stake right away,” said Matthew Kennedy, senior initial public offering market strategist at Renaissance Capital.
Trump faces a Monday deadline to post a $464 million bond in New York’s civil fraud case against him or New York’s attorney general could try to seize his golf course and private estate north of Manhattan – or other assets.
The good news for Trump is that there are strong incentives for shareholders to approve the merger with Digital World Acquisition Corp.
If it gets the green light from shareholders, Trump stands to be the dominant shareholder, with a stake of at least 58.1%, according to filings.
The merger agreement calls for Trump to own roughly 79 million shares of the new public company – and potentially tens of millions more if certain goals are hit.
At Digital World’s current share price of around $43, that massive stake would be worth $3.4 billion – at least on paper. Digital World shares are set to move even higher on Friday, rising another 3% in premarket trading above $44.
The merger could close swiftly.
Regulatory filings indicate the companies expect to close the merger on the second business day after the shareholder vote is approved. That sets the stage for trading to begin under the new name and ticker symbol by Tuesday or Wednesday, although it could take longer, according to Kennedy.
‘Clearly a bubble’
The bad news for Trump is that this stake is not as liquid as it sounds. Those paper gains would be very difficult for Trump to translate to actual cash.
In fact, Trump’s shares in this company are in many ways even less liquid than his real estate holdings, according to Charles Whitehead, a law professor at Cornell Law School.
First, experts say the market is drastically overvaluing Trump Media based on the company’s fundamentals.
That means Trump would have a hard time dumping the stock or even pledging it as collateral.
“The stock price is clearly a bubble,” Yale law professor Jonathan Macey told CNN. “No rational investor would take the stock at face value, especially if they had to hold it for any length of time.”
SEC filings indicate Trump Media’s revenue amounted to just $1.1 million during the third quarter. The company posted a loss of $26 million that quarter.
Truth Social’s shrinking user base
Not only that, but Truth Social appears to be shrinking.
The number of Truth Social’s U.S. monthly active users on iOS and Android is down 39% year-over-year, according to Similarweb data shared with CNN earlier this month. Truth Social remains much smaller than X (formerly Twitter), which is also shrinking but at a slower pace.
And yet Trump Media is being valued north of $6 billion on a fully diluted basis, which includes all stocks and options that could be converted to common stock, according to Jay Ritter, a finance professor at the University of Florida.
Ritter said the current market price is hard, if not impossible, to justify.
“It is grossly overvalued,” said Ritter. “It qualifies as a meme stock for which the price is divorced from fundamental value…Meme stock investors are usually buying on the basis of the greater fool theory of investing: It is overvalued today, but I hope to make money selling it to an even greater fool tomorrow at an even higher price.”
Insiders can’t sell right away
But even in the unlikely event that Trump found a taker for those shares, experts say he is likely not allowed to sell or pledge that stock – at least not yet.
As is typical in a deal like this, certain shareholders are subject to a lock-up period that prevents insiders from immediately selling.
“No one wants to buy into a company where the largest shareholder – and really the face of the biggest product – is selling,” said Whitehead.
In this case, key shareholders of Trump Media, including its management team, have agreed not to sell their common stock for six months to maintain “important stability to the leadership and governance” of the company, according to SEC filings.
Not only does that lock-up agreement prevent these key shareholders from selling their stock for six months, it says they have agreed not to “lend, offer, pledge…encumber, donate” that stock during the period.
If the share price stays above $12 for a period of time, it’s possible that insiders can sell or pledge their stock 150 days after the deal closes.
“The lock-up is meant to stop insiders from selling immediately after the merger,” said Xavier Kowalski, a former partner at Schulte Roth & Zabel who is now a lecturer in the finance department at the University of Florida. “It also stops them from pledging the stock, like with a margin loan. So it’s going to be difficult to find a way to use those shares to get cash for now.”
Banks may balk
Moreover, there are additional lock-up restrictions contained in an amended charter that experts say appear to include Trump. That lock-up also restricts certain shareholders from immediately selling after the deal closes.
“If his shares are covered by the charter’s lockup provisions then, absent an amendment to the charter, President Trump cannot pledge this stock. Full stop,” Whitehead said.
And amending the charter would be tricky – even for Trump and his outsized sway over the company. That’s the kind of thing that would have to be disclosed ahead of time because it would impact potential buyers of the stock.
“He can’t do this quietly. If President Trump today intends to amend the charter and they are not disclosing this intention, that’s a problem,” Whitehead said. “Presumably, they would need to take the position after the vote approving the merger that President Trump woke up and suddenly said, ‘Hey, let’s amend the charter.’”
Now even if Trump overcame these potentially insurmountable obstacles, there is no guarantee any bank would take this stock as collateral in a loan.
“If I’m a bank, I’m going to be troubled by the idea of a significant shareholder pledging his stake,” Whitehead said. “Any bank doing a proper credit analysis must be sensitive to the fact that this stock may very well tank if it turns out that President Trump is looking to sell down the position.”
Who’s running for president? See the latest rundown of major 2024 candidates Donald Trump
The former president announced his third campaign for the White House on Nov. 15, 2022, at his Mar-a-Lago resort, forcing the party to decide whether to embrace a candidate whose refusal to accept defeat in 2020 sparked the U.S. Capitol attack and still dominates his speeches.
The GOP front-runner remains hugely popular in the Republican Party, despite making history as the first president to be impeached twice and inciting the Capitol insurrection on Jan. 6, 2021. Referring to himself as America’s “most pro-life president,” Trump nominated three conservative judges to the Supreme Court, paving the way for the reversal of Roe v. Wade, which had legalized abortion nationwide for nearly 50 years. Sweeping criminal justice reforms he signed into law in 2019 eased mandatory minimum sentences and gave judges more discretion in sentencing.
In March, Trump became the first former U.S. president to be criminally charged, facing 34 felony counts of falsifying business records as part of a hush-money scheme. Since then, he has been charged with 57 more felonies in three other criminal cases, accused of mishandling and unlawfully retaining classified documents and trying to illegally overturn the results of the 2020 election.
His overwhelming win in the lead-off Iowa caucuses signaled his dominant position in the race for the GOP nomination.
Matt Rourke, Associated Press Joe Biden
President Joe Biden formally announced his reelection campaign on April 25 in a video, asking voters for time to “finish this job.”
Biden, the oldest president in American history, would be 86 at the end of a second term, and his age has prompted some of his critics to question whether he can serve effectively. A notable number of Democratic voters indicated they would prefer he not run, though he is expected to easily win the Democratic nomination.
Biden, who has vowed to “restore the soul of America,” plans to run on his record. He spent his first two years as president combating the coronavirus pandemic and pushing through major bills such as the bipartisan infrastructure package and legislation to promote high-tech manufacturing and climate measures.
Ben McKeown, Associated Press Robert F. Kennedy Jr.
The bestselling author and environmental lawyer announced on Oct. 9 that he was ending his Democratic presidential bid and instead launching an independent run.
A nephew of President John F. Kennedy and son of Attorney General Robert F. Kennedy, he initially launched a long-shot bid to challenge Biden for the Democratic nomination on April 19 in Boston. He said in announcing his party switch that he intended to be a spoiler candidate for both Biden and Trump.
Kennedy has emerged as one of the leading voices of the anti-vaccine movement, with public health experts and even members of his own family describing his work as misleading and dangerous. He has also been linked to far-right figures in recent years.
Hannah Schoenbaum, Associated Press Jill Stein
The environmental activist, whose 2016 third-party presidential bid was blamed by Democrats for helping Trump win the White House, says she is making another run for the nation’s highest office.
Jill Stein announced Nov. 9 that she will again run under the Green Party banner. “I’m running for president to offer that choice for the people outside of the failed two-party system,” she said.
She ran against Trump and Democrat Hillary Clinton in 2016 as a Green Party candidate and received about 1% of the vote. Some Democrats said her candidacy siphoned votes away from Clinton, particularly in swing states like Wisconsin.
Matt Rourke, Associated Press Cornel West
The progressive activist and scholar announced Oct. 5 that he was ending his bid for the presidency under the Green Party banner and was instead running as an independent.
West wrote on X that he was running as an independent to “end the iron grip of the ruling class and ensure true democracy!” He added, “We need to break the grip of the duopoly and give power to the people.”
He initially announced in June that he would be running as a member of The People’s Party before soon switching to the Green Party.
Andrew Harnik, Associated Press Who’s dropped out?
Republicans:
Democrats:
Carolyn Kaster, Associated Press Be the first to know
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