(Bloomberg) — On the financial front, the year’s news looks dire for former President Donald Trump.In just one month, two judges in two separate cases ordered him to pay approximately $540 million The total is so large that experts speculate it could eat into his campaign finances.
However, what few people are paying attention to: the wild rise in stocks related to Trump Media Technology Group, which operates truth society The platform on which he posts every day has brought him a windfall of nearly $4 billion.
There are a lot of caveats to that number, including that for now it’s just a paper profit and he’ll have to wait a few months to cash it out, but the stock’s surge could be a huge financial boost for a billionaire candidate who’s suddenly short of cash. Boost.
The type of deal that would bring Trump this new fortune — known as a “de-SPAC,” or blank-check deal — is a complex one that has come amid a stock-market frenzy fueled by pandemic-era stimulus. A brief hit on Wall Street. In this particular deal, Truth Social’s owners will enter the stock market through a merger with a publicly traded company called Digital World Acquisition Corp.
Shares of DWAC, as the company is called, have soared 161% this year in anticipation of the merger, which has been approved by the Securities and Exchange Commission and is now scheduled for a shareholder vote next month. If approved, Trump would hold more than 58% of the shares. At DWAC’s current price (Tuesday’s closing price of $45.63 per share), the stake is worth $3.6 billion. If the shares hit certain performance targets, Trump could receive even more — close to $1.3 billion in additional value.
Taking a stake in a money-losing social media company with minimal revenue and a user base that’s a fraction of its competitors seems unlikely to double Trump’s net worth, in the view of many analysts above. But as Trump began to suppress his Republican rivals in January and set up a potential rematch with President Joe Biden in November, retail investors frantically boosted DWAC’s stock price. When a group on Wall Street known as momentum traders join the buying frenzy, the conditions for an epic rally are set. In just six days, the stock rose 200%.
Matthew Tuttle, CEO and chief investment officer of Tuttle Capital Management, said: “This is a meme stock, it’s not the kind of stock that’s going to blow out the price-to-earnings ratio — you Throw it out the window.” “DWAC has now become the de facto way to bet on or against Trump,” he added.
But if Trump’s backlash returns him to the White House — and many polls now show him as the favorite to win — having a mouthpiece that can carry his message could be valuable, at least in theory.
“The fundamental bull case is that he’s limiting tweets to the Truth Social platform, which means if you want to see them or interact with them, you also need to register, which makes advertising more profitable,” Tuttle said. .”
Penalties and Fees
While Trump’s windfall is enough to cover the fines and legal fees he faces, he attractive A $454 million civil fraud verdict against New York State — he would have to wait at least five months to cash in the stock unless the company applied to speed up that time.
“He needs the money, but he can’t sell too much at once or risk the stock price plummeting,” said Usha Rodriguez, a professor at the University of Georgia School of Law. “Once the lockup expires, he can use the shares as collateral for a loan in order to obtain cash without selling the stock.”
Industry observers such as Jay Ritter, a finance professor at the University of Florida, say banks are unlikely to lend him large sums of money against the locked-up shares.
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Representatives for DWAC, Trump Media and the Trump Organization did not immediately respond to requests for comment.
Even the so-called benefits are enough to cover it. After the deal closes, Trump Media holders will be entitled to receive up to an additional 40 million shares, most of which are earmarked for Trump, if the stock trades above $17.50 on 20 of 30 days.
A more troubling question for Trump is whether shareholders will maintain their faith more than five months after the merger closes.As recently as April, Trump assigned the company a US$5 million to US$25 million The value in financial disclosures filed with the Federal Election Commission represents only a small portion of the SPAC’s deal terms and market valuation.
read more: Trump drives meme-like rally in stocks linked to 2024 bids
The business has been struggling, with Trump Media losing $49 million in the nine months through September on revenue of just $3.4 million, according to regulatory filings. As a result, the company warned it could run out of cash without a merger.
Ritter said Trump Media “has been unable to turn things around and it’s unclear how the company will successfully monetize the business.”
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The expected completion of the deal, after more than two years of starts and stops, is a feat in itself. Skeptics question whether a Trump Media merger can clear a string of shareholder votes and investigations by the Justice Department and Securities and Exchange Commission.
Industry observers agree that after the deal closes and during the lockup, the stock price — and Trump’s potential windfall — will depend on how successful he is politically. Trump Media has been working to “compete with the Free Media Alliance” and fight big tech companies like Meta Platforms Inc., Netflix Inc. and Elon Musk’s X.
Shareholders may even choose to keep their shares in the hope that Trump’s media will align with his campaign messaging, so Trump has a strong incentive not to add Truth Social to the long list. enterprise He got the nod and then quit.
“Most of the people who are buying and holding this thing are Trump supporters,” Tuttle said. “I don’t think it would be unwise for him to completely abandon his position and let them take the blame.”
