Trump probably won’t be able to cash in on his $3+ billion windfall from Truth Social right away. (2024)

The long-term prospects for the business are highly questionable. Trump’s company has said it expects to continue losing money for a while, and at least one expert says it’s probably worth much less than the stock market suggests.

Trump’s pending return to Wall Street comes down to a vote scheduled for Friday by shareholders of a company called Digital World Acquisition Corp., which right now is essentially just a pile of cash. The corporation hopes to merge with Trump Media & Technology Group, the company behind Truth Social which is known as TMTG. If shareholders approve the deal, TMTG could soon see its shares listed on the Nasdaq instead of Digital World.

Here’s a look at the proposal and Trump’s role in it.

WHAT HAPPENS ON FRIDAY?

Digital World shareholders are scheduled to vote on approving a merger with TMTG, where Trump is the president. Digital World is what’s called a special purpose acquisition company, or SPAC, or “blank check company.”

SPACs raise cash and then look for companies to merge with. These deals offer target companies a potentially faster and easier way to list their shares on the New York Stock Exchange or Nasdaq. The deal allows them to avoid some of the paperwork associated with traditional initial public offerings, or IPOs.

For investors, SPACs offer a way into hyped and potentially faster-growing companies, such as TMTG, betting service DraftKings or banking SoFi.

DO SHAREHOLDERS EVER SAY NO?

It happens, but only on rare occasions. This vote is likely to pass given how high Digital World shares have risen due to enthusiasm for Trump. It ended Thursday at $42.81 per share. It’s already up nearly 145% so far this year, outpacing the S&P 500 index’s roughly 10% gain.

Many of Digital World’s investors are small investors who are Trump fans or trying to cash in on the mania, rather than large institutional and professional investors.

WHAT HAPPENS IF THE SHAREHOLDERS APPROVE IT?

Digital World will merge with TMTG. The stock will continue to trade under the Digital World symbol DWAC, possibly for a couple of days or a couple of weeks, experts say. Then, at some point, companies involved in SPAC deals typically announce that their shares will begin trading under the new ticker symbol.

Trump’s company hopes to trade under the symbol DJT, the former president’s initials. The same symbol was used by Trump Hotels & Casino Resorts before it filed for Chapter 11 bankruptcy protection in 2004. HOW MUCH WILL TRUMP GET?

Trump will own the majority of the new combined company, or nearly 78.8 million shares, which would represent at least 58%. Multiply that by Digital World’s current share price of more than $40, and the total value could exceed $3 billion.

TRUMP NEEDS CASH, RIGHT? CAN YOU SELL IMMEDIATELY?

Trump faces a $454 million judgment in a fraud lawsuit, among other financial burdens. But he won’t be able to sell easily for at least six months. That’s because TMTG’s largest shareholders will be under what’s called a “lock-up” provision, a common restriction on Wall Street that prevents large initial investors from immediately dumping their shares. Such sales could sink the stock price.

Investors under the lock-up agreement cannot sell, lend, donate or encumber their shares for six months after the deal closes. Legal experts say “tax” is a powerful word that could prevent Trump from using the stock as collateral to raise cash before six months are up.

There are some exceptions, such as the transfer of shares to immediate family members. But in such cases, recipients would also have to agree to honor the blocking agreement.

DEFINITELY NO CASH IMMEDIATELY?

Digital World could walk away from the lockup agreement before the deal closes. Or, in what some legal experts say could be a more likely path, the new company’s board of directors could decide to modify the lock-up agreement after the deal closes.

Such a decision by the board could expose those directors to legal scrutiny. They would have to demonstrate that they do so for the benefit of shareholders.

But if the value of the Trump brand is key to the company’s success, and if loosening lockup agreements can preserve that brand, it could generate a case that would at least prevent board members’ lawyers from being targeted. of ridicule out of court immediately.

In the past, the boards of some companies have modified lock-up agreements to allow investors to sell earlier.

WHO WILL BE ON THE BOARD OF DIRECTORS OF THIS COMPANY?

Mostly people introduced by TMTG, including the former president’s son, Donald Trump Jr., if all goes as expected. Former Republican Representative Devin Nunes would be a director and CEO of the company.

Also on the board would be Robert Lighthizer, who served as Trump’s U.S. trade representative, and Linda McMahon, who led the Small Business Administration under Trump.

IS THIS A SAFE INVESTMENT?

Every action has risks. Digital World has filed 84 pages with US regulators to list many of its and TMTG’s risks.

One risk, the company said, was that as a majority shareholder, Trump would have the right to vote his shares in his own interest, which may not always be in the interest of all shareholders generally.

He also cited the high failure rate of new social media platforms, as well as TMTG’s expectation that the company will lose money on its operations “for the foreseeable future.” The company lost $49 million in the first nine months of last year, when it earned just $3.4 million in revenue and had to pay $37.7 million in interest expense.

“It’s losing money, there’s no way the company is worth anything close” to what the stock price suggests, said Jay Ritter, an IPO specialist at the University of Florida’s Warrington College of Business.

“Here, since the stock price is so divorced from fundamental value, it’s pretty much the same problem that arose with meme stocks,” he said, recalling companies whose stock prices once soared far beyond expectations. that professionals considered rational. “With AMC and GameStop, the price was well above the fundamental value, and it begs the question: Can you get out before the music stops?”