Donald Trump seems to be in a hurry to secure funds to settle a substantial $464 million fraud penalty. Is there a chance the stock market could come to his aid?
Trump Media, the operator of the Truth Social platform, is on the verge of going public following a decisive vote by the majority of Digital World Acquisition Corp shareholders. This move positions Mr. Trump to hold a minimum stake of 58% in the merged entity, which, at the current share prices of Digital World, would be valued at nearly $3 billion.
Despite significant concerns surrounding the deal, including pending lawsuits from past business associates and an $18 million settlement Digital World agreed to pay over alleged fraud in the merger process, shareholders of Digital World, predominantly individual investors, many of whom are believed to be loyal to Trump, seem undeterred.
“This is just the start,” remarked Chad Nedohin, a supporter of the deal, on his show DWAC Live, broadcasted on Rumble. “There’s no reason to freak out.”
Digital World, known as a Special Purpose Acquisition Company (SPAC), will undergo a name change to Trump Media & Technology Group and is poised to begin trading on Nasdaq as DJT possibly next week. However, this move may not immediately resolve Trump’s financial predicaments, such as the substantial fraud fine in New York. Restrictions prevent Trump from selling or transferring his shares for at least six months, although exemptions might be granted by the new company. Alternatively, Trump could seek a loan backed by the share value, though analysts caution that banks may lend him significantly less than the shares’ paper value due to the business’s inherent risks.
Some supporters, like Mr. Nedohin, speculate that backing this deal could aid Trump in his legal battles. “This is putting your money where your mouth is for free speech, to save your country, potentially losing it all,” he remarked on his show.
Analysts warn of significant risks for Digital World shareholders, especially considering the drop in share prices since the announcement of plans to acquire Trump Media in 2021. Despite Friday’s decline, the implied valuation of Trump Media remains substantial, considering its modest revenue of $3.3 million and a loss of nearly $50 million in the first nine months of the preceding year.
The merger injects over $200 million in cash into Trump Media, potentially facilitating growth and expansion. However, Truth Social, positioned as an alternative to major social media platforms, remains relatively small, with approximately 8.9 million sign-ups, as per its claims. The platform does not track user growth or engagement metrics, a fact it doesn’t intend to change, according to regulatory filings. In February, Truth Social received an estimated five million visits, significantly lower than major platforms like X, previously known as Twitter, which recorded over 100 million visits.
Financial experts categorize Digital World as a “meme stock,” wherein share prices detach from a company’s fundamentals, posing an eventual risk of decline. While predictions about the timeline of this collapse remain uncertain, there’s an understanding that it’s a matter of when, not if.
Individual investors, particularly drawn in after the announcement of the Trump deal and his primary win in Iowa, have been instrumental in driving Digital World’s stock activity. However, ahead of the recent vote, there’s been a notable decrease in activity, suggesting that professional firms may be assuming a more dominant role in trading.
Despite Trump’s minimal contributions beyond his name and posts to the platform, he stands to be the primary beneficiary of this deal. Michael Ohlrogge, a law professor at New York University, who has scrutinized listings like Trump Media, describes it as “an enormous transfer of value from [investors]… to Trump, which stands to be extremely lucrative for him.”
