The highly anticipated Wall Street debut of Donald Trump’s Truth Social network has the potential to confer upon him stock holdings worth billions of dollars on paper. However, Trump may face obstacles in immediately liquidating these assets unless certain conditions change.
Despite the initial buzz surrounding Truth Social’s IPO, the long-term viability of the business remains uncertain. Trump’s company has acknowledged expectations of continued financial losses in the foreseeable future, casting doubt on the true value of the enterprise. Some experts even suggest that the company’s actual worth might be significantly lower than what the stock market currently reflects.
The imminent return of Trump to Wall Street hinges on a crucial vote scheduled for Friday by shareholders of Digital World Acquisition Corp., a company primarily consisting of cash reserves at present. Digital World aims to merge with Trump Media & Technology Group (TMTG), the entity responsible for Truth Social. If shareholders approve the merger, TMTG could swiftly transition to trading its stock on the Nasdaq exchange, taking Digital World’s place.
Given the significance of this proposal and Trump’s central role in it, there is considerable attention surrounding the outcome of the shareholder vote and its implications for Truth Social’s future trajectory.
On Friday, shareholders of Digital World Acquisition Corp. are slated to vote on whether to greenlight a merger with Trump Media & Technology Group (TMTG), where Donald Trump serves as chairman. Digital World operates as a special purpose acquisition company (SPAC), commonly referred to as a “blank-check company.”
SPACs raise funds with the intention of identifying and merging with target companies, providing these companies with a potentially faster and less cumbersome route to list their stocks on major exchanges like the New York Stock Exchange or Nasdaq. This arrangement bypasses some of the regulatory hurdles associated with traditional initial public offerings (IPOs), streamlining the process for the target company.
For investors, SPACs present an opportunity to invest in promising, often high-growth companies like TMTG, DraftKings, or SoFi, without undergoing the typical IPO procedures.
While it’s not unheard of for shareholders to vote against proposed mergers, such instances are rare. Given the excitement surrounding Trump’s involvement, the vote for the Digital World-TMTG merger is expected to pass. Digital World’s stock price has surged on the anticipation of the merger, closing at $42.81 per share on Thursday, up nearly 145% since the beginning of the year, far outpacing the broader market’s gains.
It’s worth noting that many of Digital World’s investors are individual retail investors, driven either by support for Trump or by the potential for profit, rather than institutional investors.
If the shareholders approve the merger, Digital World will proceed with merging with TMTG. Initially, the stock will continue to trade under Digital World’s ticker symbol, DWAC, for a period ranging from a few days to a few weeks. Subsequently, companies involved in SPAC deals typically announce a transition to trading under a new ticker symbol. TMTG aims to trade under the ticker symbol DJT, reflecting the former president’s initials. It’s noteworthy that this ticker symbol was previously used by Trump Hotels & Casino Resorts before it underwent Chapter 11 bankruptcy protection in 2004.
Donald Trump stands to gain a significant stake in the new combined company, owning approximately 78.8 million shares, which would represent roughly 58% ownership. Based on Digital World’s current stock price of over $40 per share, the total value of Trump’s stake could exceed $3 billion.
However, Trump’s ability to convert this paper wealth into cash immediately is restricted. The lock-up provision, a standard practice on Wall Street, prohibits major TMTG shareholders from selling their shares for at least six months after the deal closes. This restriction includes actions such as selling, lending, donating, or using the shares as collateral. While there are exceptions, such as transferring shares to immediate family members, these individuals would also be bound by the lock-up agreement.
There is a possibility that Digital World could waive the lock-up agreement before the deal closes, or the new company’s board could amend the agreement after the deal closes. However, such a decision would require justification to demonstrate that it benefits shareholders and could invite legal scrutiny.
The board of the new company, primarily composed of individuals nominated by TMTG, would include notable figures such as Donald Trump Jr., former Republican Rep. Devin Nunes, former U.S. Trade Representative Robert Lighthizer, and former Small Business Administration head Linda McMahon.
Despite the potential for significant gains, investing in the new company carries risks. Digital World has outlined various risks associated with TMTG in regulatory filings, including Trump’s control over voting shares and the high failure rate of new social media platforms. Additionally, TMTG anticipates continued operational losses for the foreseeable future, raising concerns about its long-term financial sustainability. Experts caution that the current stock price may not reflect the company’s fundamental value, similar to the phenomenon observed with meme stocks like AMC and GameStop.
