This year, the financial outlook for former president Donald Trump has been bleak. Two judges in two separate cases ordered him to pay a total of $540 million in a single month—a sum so enormous that analysts have speculated it could deplete the funds for his campaign.
However, what has received considerably less attention is the following: A stock associated with Trump Media & Technology Group, the operator of the Truth Social platform where he publishes daily, has experienced a tumultuous surge, yielding him an almost $4 billion windfall.
There are several limitations associated with this figure, such as the fact that it is currently only a paper profit and will require months to become a tangible asset; however, the surge in the stock represents a potentially enormous financial boost for a billionaire candidate who is unexpectedly cash-strapped.
A complex transaction known as a de-SPAC or blank-check contract, which would transfer this newly acquired wealth to Trump, momentarily gained popularity on Wall Street amid the stock mania sparked by stimulus measures during the pandemic era. The owner of Truth Social would enter the stock market through a merger with Digital World Acquisition Corp., a publicly traded corporation, under the terms of this transaction.
Trump may incur interest charges of up to $2.6 million for each month that his fine remains unpaid.
DWAC, the company’s stock, has increased by 161% so far this year in anticipation of the Securities and Exchange Commission-approved merger that is now scheduled to be put to a shareholder vote the following month. Upon approval, Trump will possess an ownership interest exceeding 58%. DWAC’s share price as of Tuesday close was $45.63, indicating that the stake is currently valued at $3.6 billion. Nearly an additional $1.3 billion in value could be awarded to Trump should the shares achieve specific performance objectives.
The notion that a stake in a money-losing social media company with minimal revenue and a fraction of its competitors’ user bases could conceivably increase Trump’s net worth by more than twofold is deemed improbable by many analysts. However, retail investors bid frantically on DWAC shares as Trump began to dominate his Republican opponents in January, setting up a likely rematch with President Joe Biden in November. And when momentum traders, a group based on Wall Street, joined the purchasing mania, the conditions were set for an epic rally. Within six days, the stock increased by 200 percent.
Matthew Tuttle, chief executive officer and chief investment officer of Tuttle Capital Management, stated, “This is a meme stock; P/E ratios are irrelevant; you can probably disregard that.” He added, “DWAC is now the de facto method for betting on or against Trump.”
However, in the event that Trump’s comeback propels him back to the White House, as numerous surveys presently place him as the frontrunner to win, there may be some theoretical merit in obtaining a portion of the mouthpiece that conveys his message.
“The primary advantage is that he restricts his tweets to the Truth Social platform, which requires users to register in order to view or engage with them,” Tuttle explained. “This significantly increases the profitability of advertising.”
Fines and Penalties
Although the potential earnings of Trump would surpass the costs of his legal representation and penalties (he is appealing a $454 million civil fraud verdict in New York state), he would be obligated to exercise his shares for a minimum of five months, unless the company submits a motion to accelerate that period.
“He needs the money, but he cannot sell too much at once for fear of the stock plummeting,” said Usha Rodrigues, a law professor at the University of Georgia. “He could use the shares as collateral for loans to obtain cash after the lockup has expired, without having to sell the shares.”
And it is improbable that a bank would lend him a substantial amount of money secured by the locked-up shares, according to industry analysts such as Jay Ritter, a finance professor at the University of Florida.
DWAC, Trump Media, and the Trump Organization representatives failed to respond to requests for comment at this time.
The alleged earnout would adequately compensate for the expense. Filings indicate that if the stock maintains a price of $17.50 for twenty to thirty days following the closing of the transaction, Trump Media shareholders could potentially receive an additional forty million shares, the majority of which would be designated for Trump.
Doubly concerning for Trump is whether or not shareholders will maintain confidence in the company for an additional five months following the completion of the merger. Trump estimated the company’s worth between $5 million and $25 million in a financial disclosure submitted to the Federal Election Commission as recently as April. This estimate is significantly lower than the market value and the terms of the SPAC agreement.
Regulatory filings indicate that Trump Media experienced financial difficulties during the nine-month period ending in September, as evidenced by its loss of $49 million on revenue of $3.4 million. As such, according to filings, the company has warned that it may run out of capital in the absence of the merger.
Ritter stated that Trump Media “has not been able to turn the corner, and it is unclear how the company will be able to successfully monetize its business.”
The expected finalization of the agreement is a remarkable achievement in and of itself, following over two years of intermittent progress. Skeptics raised doubts regarding the ability of the Trump Media merger to withstand a multitude of shareholder ballots, in addition to scrutiny from the SEC and the Justice Department.
Industry observers concur that the share price, as well as the potential windfall for Trump, will be contingent upon his political success both following the completion and throughout the lockup period. Trump Media has endeavored to “confront the liberal media consortium” and compete with major technology firms such as Netflix Inc., Meta Platforms Inc., and Elon Musk’s X.
Shareholders may opt to retain their shares with the expectation that Trump, due to the congruence between Truth Social and his campaign message, would be disinclined to further endorse and subsequently divest from the numerous ventures that Trump has previously endorsed.
Tuttle stated, “The majority of those purchasing and possessing this item are Trump supporters.” “It would not be prudent for him to completely abdicate his position and hand over the bag to them,”
–With the help and support of Tom Maloney.
