(Bloomberg) — On the financial front, the news has been dire for former President Donald Trump this year. Within a span of just one month, two judges in two separate cases ordered him to pay around 540 million dollars in total — a sum so large that pundits have speculated it could erode his campaign finances.
What has gotten far less attention, however, is this: A frenzied rally in a stock linked to the Trump Media & Technology Group — which operates Social Truth platform that he posts to every day – has created a windfall of nearly $4 billion for him.
There are any number of caveats to that figure, including the fact that right now it's just a paper gain that he'll have to wait months to cash in on, and yet the stock surge is a potentially huge financial boost for a billionaire hopeful that suddenly there is a lack of money.
The type of transaction — known as a “de-SPAC” or check-check deal — that would give Trump this newfound wealth is a complex that briefly became popular on Wall Street during the stock craze. unleashed by the stimulus of the pandemic era. In this particular deal, the owner of Truth Social would go public by merging with a publicly traded company called Digital World Acquisition Corp.
Shares of DWAC, as the company is known, have soared 161% this year in anticipation of the merger, which has been given the green light by the Securities and Exchange Commission and is now scheduled to go to a shareholder vote next month. If approved, Trump will hold more than 58% of the shares. At DWAC's current price — it closed Tuesday at $45.63 a share — that stock is worth $3.6 billion. Trump could get even more — close to an additional $1.3 billion if the stock meets certain performance targets.
It seems unlikely to many analysts that a stake in a money-losing social media company with little revenue and a fraction of its rivals' user base could potentially double Trump's net worth. But as Trump began to turn on his Republican rivals in January, setting up a potential matchup with President Joe Biden in November, retail investors frantically bid up DWAC's stock. And when a group on Wall Street known as momentum traders joined the buying frenzy, the conditions for an epic rally were in place. In just six days, the stock jumped 200%.
“This is a meme stock, it's not the kind of thing where you cut P/E ratios — you can throw it out the window,” said Matthew Tuttle, chief executive officer and chief investment officer at Tuttle Capital Management. “DWAC has now become the de facto way to bet for or against Trump,” he added.
But if Trump's comeback puts him back in the White House — and many polls currently make him the favorite to win — there may be value, in theory at least, in owning a piece of voice that will carry his message. .
“The basic bull case is that he limits his tweets to the Truth Social platform, meaning if you want to see or interact with them, you have to sign up as well, making advertising even more profitable,” Tuttle said.
Fines and fees
While Trump's windfall would more than cover the fines and legal fees he faces — he is appealing New York State civil fraud verdict of $454 million – he would have to wait at least five months before cashing in the shares unless the company files to speed up that time.
“He needs the money, but he can't sell too much at once without risking stockpiling,” said Usha Rodrigues, a professor at the University of Georgia School of Law. “After the lock-up expires, he can use the shares as collateral for loans so he can access cash without selling the shares.”
And it's unlikely that a bank will give him a large sum of money against the closed-end stock, according to industry watchers like University of Florida finance professor Jay Ritter.
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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 profit would more than cover it. After the deal closes, if the stock trades above $17.50 for 20 of the 30 days, Trump media holders will be entitled to receive up to 40 million additional outstanding shares — with the majority earmarked for Trump.
A more vexing question for Trump is whether shareholders will keep faith more than five months after the merger is completed. As recently as April, Trump assigned the company a 5 to 25 million dollars value in a financial statement filed with the Federal Election Commission, part of its valuation under the terms of the SPAC agreement as well as in the market.
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The business has struggled, with Trump Media losing $49 million in the nine months to September while generating just $3.4 million in revenue, according to regulatory filings. As such, the company has warned it could run out of money without a merger, the filings show.
Trump Media “has not been able to turn the corner, and it's not clear how the company will succeed in monetizing its business,” Ritter said.
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The anticipated completion of the deal is a success in itself after more than two years of starts and stops. Skeptics questioned whether the Trump Media merger could clear a series of shareholder votes, as well as investigations by the Justice Department and the SEC.
After completion and during the shutdown, the stock price — and Trump's potential earnings — will depend on how successful he is politically, industry observers agree. Trump Media has aimed to “rival the liberal media consortium” and fight against big tech companies like Meta Platforms Inc., Netflix Inc. and Elon Musk's X.
Shareholders may even choose to hold their shares in the hope that because of Trump Media's alignment with his campaign message, Trump would have a strong incentive not to add Truth Social to his long list of UNDERTAKINGS he is approved, then removed from.
“Most of the people who buy and hold this thing are Trump supporters,” Tuttle said. “I don't think it would be smart for him to completely walk out of his position and leave them holding the bag.”