Trump is on the verge of a windfall of billions of dollars. Here are 3 things to know
By Rafael Nam
Published March 22, 2024 at 7:35 AM CDT
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Former President Trump stands to win over $3 billion if his social media company goes public — but he may not be able to cash in immediately.
Former President Trump is on the verge of a windfall of billions of dollars — but it may not come soon enough to help him fend off his mounting legal problems.
Trump stands to make over $3 billion as the company behind his social media platform Truth Social — Trump Media and Technology Group — goes public.
Trump Media is accomplishing that by merging with an existing shell company called Digital World Acquisition Corp. It's a process that allows a company to bypass all the hoops of a traditional initial public offering.
Digital World shareholders formally approved the merger with Trump Media on Friday.
But the process of listing Trump Media has been a rather convoluted saga, much like the business and political career of the former president, marked by investigations, lawsuits and general chaos.
Here are three things to know about how Trump stands to earn billions of dollars.
All eyes are on the Digital World shareholders
The vote by Digital World shareholders should be simple.
If the shareholders of the shell company do approve the deal, Digital World would become Trump Media in the stock markets as early as next week, trading under the stock symbol DJT, short for Donald J. Trump.
But Digital World has struggled to find enough shareholders to show up in previous key votes, so there are no guarantees that they can get enough of a quorum on Friday to approve the merger.
And the process to this point has been far from easy in other ways. Digital World has also faced scrutiny from the Securities and Exchange Commission, and it has also facedlawsuits from key shareholders that are still pending
Trump stands to earn billions
If enough Digital World shareholders approve the deal, the windfall for Trump could be big.
Trump would own over 50% of the new merged company, a stake that would be worth over $3 billion at current market valuations.
Analysts agree those kinds of valuations are far removed from the actual value of Trump Media. Truth Social had just over $3 million in revenue in the first nine months of last year and losses of nearly $50 million.
But a lot of the value comes from the hundreds of thousands of rabid Trump supporters who have bought into Digital World in anticipation of the merger with Trump media.
And that's why the stock is widely seen as a "meme stock," meaning shares that are driven by the whims of individual investors and not for any fundamental factors.
Stock markets have seen clear examples of this in recent years, like retailer Gamestopor movie chain AMC, both of which have caught Wall Street by storm by experiencing spectacular rallies during the pandemic.
Jay Ritter, Cordell professor of finance at the University of Florida says Digital World is not much different from the craze that enveloped those two stocks.
"This is largely a meme stock where the price is divorced from the fundamental value of the company," he says.
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Trump Media, the company behind Truth Social, could be valued at billions of dollars when it goes public, even if analysts believe the valuations are well above its financial fundamentals.
There are professional investors, too, looking for opportunities to profit from the deal. Take Matthew Tuttle, chief executive of Tuttle Capital Management.
"While fundamentally. I don't get it, I'm going to trade it because it's going to move," Tuttle says. "It's going to have a rabid following and it's going to be a fun stock."
But Trump might not be able to sell his shares soon
The potential windfall comes at a time when Trump is in dire need of cash.
On Monday he needs to post over $400 million in bond to settle a civil fraud case, and Trump has been unable to secure a company to put up the cash.
However, how soon the former president can cash in on his stake in Trump Media is uncertain.
Under the current agreement, Trump faces a six-month lock-up period, meaning he won't be able to sell his shares in Trump Media during that period.
He could, however, try to work out a deal that would allow him to sell some or all of his holdings earlier, though a big sale at once would risk sending Trump Media shares sharply lower.
Trump could also try to find somebody who would loan him the money using his Trump Media shares as collateral.
But the Trump Media shares would be trading at above what many analysts think it's actually worth, making it difficult for a lender to justify lending him the money.
Then again, this is former President Trump, as Tuttle notes.
"All I know," Tuttle says. "Whenever Trump is involved in something, I think you got to assume to expect the unexpected."
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