Donald Trump may be about to become  billion richer.  But that probably won’t solve his cash crunch
Donald Trump may be about to become  billion richer.  But that probably won’t solve his cash crunch



CNN

Former President Donald Trump is on the verge of a multibillion-dollar windfall at a time when he faces enormous financial and legal pressure.

Trump Media & Technology Group, the owner of Trump’s struggling social media platform Truth Social, is on track to go public as early as next week after years of legal and regulatory hurdles.

If shareholders vote Friday to approve the merger of Trump Media with a blank-check company, Trump will own a controlling stake in a public company with stock worth more than $3 billion at current market prices.

But experts tell CNN there are numerous practical, financial and legal reasons why this deal — even if approved — is unlikely to solve Trump’s impending financial crisis.

“President Trump won’t be able to monetize this stake right away,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.

Trump faces a Monday deadline to post a $464 million bond in a New York civil fraud case against him, or New York’s attorney general could try to seize his golf course and private estate north of Manhattan – or other assets.

The good news for Trump is that there are strong incentives for shareholders to approve the merger with Digital World Acquisition Corp.

If given the go-ahead by shareholders, Trump would be the dominant shareholder with a stake of at least 58.1 percent, according to the filings.

The merger agreement calls for Trump to own roughly 79 million shares of the new public company — and potentially tens of millions more if certain goals are met.

At Digital World’s current share price of around $43, that huge stake would be worth $3.4 billion – at least on paper. Digital World shares are expected to rise further on Friday, rising another 3% in premarket trading above $44.

The merger could close quickly.

Regulatory filings show the companies expect to close the merger on the second business day after the approval of the shareholder vote. That puts the start of trading under the new name and ticker symbol by Tuesday or Wednesday, though it could take longer, according to Kennedy.

The bad news for Trump is that this share is not as liquid as it sounds. These paper gains would be very difficult for Trump to convert into real money.

In fact, Trump’s stock in that company is in many ways even less liquid than his real estate holdings, according to Charles Whitehead, a law professor at Cornell Law School.

First, experts say the market is dramatically overvaluing Trump Media based on the company’s fundamentals.

That means Trump will have a hard time giving up the stock or even pledging it as collateral.

“The stock price is clearly a bubble,” Yale law professor Jonathan Macy told CNN. “No rational investor would take the stock at face value, especially if they have to hold it for a period of time.”

SEC filings show Trump Media’s revenue totaled just $1.1 million in the third quarter. The company reported a loss of $26 million this quarter.

Not only that, but Truth Social seems to be shrinking.

Truth Social’s US monthly active users on iOS and Android are down 39% year-over-year, according to data Similarweb shared with CNN earlier this month. Truth Social remains much smaller than X (formerly Twitter), which is also shrinking, but at a slower pace.

Still, Trump Media is valued north of $6 billion on a fully diluted basis, which includes all stock and options convertible into common stock, according to Jay Ritter, a finance professor at the University of Florida.

Ritter said the current market price is difficult, if not impossible, to justify.

“It’s grossly overrated,” Ritter said. “It qualifies as a meme stock for which the price is divorced from the fundamental value… Investors in meme stocks typically buy based on the greater fool theory of investing: It’s overvalued today, but I hope to make money by selling it at par a bigger fool tomorrow at an even higher price.

But even in the unlikely event that Trump finds a buyer for those shares, experts say he probably won’t be allowed to sell or pledge those shares — at least not yet.

As is typical for a deal like this, certain shareholders are subject to a lock-up period that prevents insiders from selling immediately.

“No one wants to buy a company where the biggest shareholder — and indeed the face of the biggest product — is selling,” Whitehead said.

In that case, key shareholders of Trump Media, including its management team, have agreed not to sell their common stock for six months to maintain “important management and governance stability” of the company, according to SEC filings.

This lock-up agreement not only prevents these key shareholders from selling their shares for six months, it says they have agreed not to “borrow, offer, pledge…encumber, donate” those shares during the period.

If the stock price remains above $12 for a period of time, insiders may be able to sell or pledge their shares 150 days after the deal closes.

“The blocking is intended to prevent insiders from selling immediately after the merger,” said Xavier Kowalski, a former partner at Schulte Roth & Zabel who is now a professor in the finance department at the University of Florida. “It also stops them from pledging the shares, as with a margin loan. So for now, it will be difficult to find a way to use these shares to get money.”

In addition, there are additional blocking restrictions contained in an amended charter that experts say appears to include Trump. This lock-up also restricts certain shareholders from selling immediately after the deal closes.

“If his shares are covered by the charter’s lockout provisions, then, absent a charter amendment, President Trump cannot pledge those shares. Period,” Whitehead said.

And amending the charter would be difficult — even for Trump and his enormous influence over the company. This is something that should have been disclosed ahead of time because it would affect potential buyers of the stock.

“He can’t do this quietly. If President Trump today intends to change the charter and they don’t disclose that intent, that’s a problem,” Whitehead said. “They’re probably going to have to take a stand after the vote to approve the merger, when President Trump wakes up and suddenly says, ‘Hey, let’s change the charter.’

Now, even if Trump clears those potentially insurmountable hurdles, there’s no guarantee that any bank will take those shares as collateral for a loan.

“If I’m a bank, I’d be troubled by the idea of ​​a significant shareholder pledging their stake,” Whitehead said. “Any bank doing proper credit analysis should be sensitive to the fact that these stocks could go down if it turns out that President Trump wants to sell the position.”

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