How Donald Trump could make billions from Truth Social’s merger

Former United States president Donald Trump could soon have his net worth increased by about $3.4 billion (about Rs 28,351 crore). If all goes as to plan, the Republican leader might be able to tap this windfall to pay his escalating legal bills.

But how will this happen? Trump’s social media company is poised to go public next week if its long-delayed merger with Digital World Acquisition Corporation is approved. The proposed deal could mark Trump’s return to Wall Street.

Let’s take a closer look.

What is the merger?

The former president’s Trump Media & Technology Group, which runs the social media platform Truth Social , is seeking a merger with Digital World Acquisition Corp –– a special purpose acquisition company (SPAC) or a shell firm created with the purpose to buy another company and take it public, as per BBC.

The shareholders of Digital World are set to meet Friday (22 March) to vote on whether to merge with Trump Media, where the former president is the chairman, reported Associated Press (AP).

While shareholders can reject a merger, it is a rare occurrence. The deal is expected to materialise given the jump in Digital World’s stock, closing at $42.81 per share on Thursday, in anticipation of the deal with Trump, as per AP.

The many lawsuits from Trump’s former business partners do not seem a deterrent either. Most Digital World backers are individual investors who are Trump loyalists, instead of Wall Street firms.

If the deal is green-lit by the shareholders, which is likely, the new entity will be called Trump Media & Technology Group Corporation and start trading next week under the stock symbol DJT – the Republican leader’s initials, reported CBS News.

How Trump would gain billions from the merger

Trump would own 78.8 million shares of the newly merged company, or a 58 per cent stake. According to CBS News, these shares could be worth $3.5 billion based on Digital World’s current share prices.

This windfall cannot come at a better time for the presumptive Republican presidential nominee who has to pay a $454 million penalty to appeal the judgment in a fraud lawsuit in New York. His lawyers told a court earlier this week that Trump was unable to secure a bond – the deadline for which is 25 March – for such a large sum, terming it “a practical impossibility” after 30 surety companies rejected him.

Trump’s other legal bills are also mounting putting his finances under strain as he prepares to face off Joe Biden in the presidential race in November.

So, can Trump convert stock into cash?

It might be difficult. There is a “lock-up” provision in the merger deal under which major shareholders of Trump Media are banned from selling their shares for six months, as per New York Times (NYT).

These provisions are common for any company going public to prevent big investors from selling their shares soon after, as this could plunge the stock’s price.

However, Trump might be able to work around this issue. As he holds over 50 per cent stake in the company and his brand is key to Trump Media’s success, he could approach the board of Digital World to waive the lock-up provision before the Friday meeting, according to an NYT report.

The other possibility is that he could wait for Trump Media to start trading on the New York Stock Exchange or Nasdaq before going to the board members with his waiver request, the report added.

However, if the new company’s board decides to alter the lock-up agreement after the deal closes, the directors could face legal scrutiny and they would have to show how the decision benefits shareholders, according to AP.

Trump Media’s future

Any publicly traded investment has risks, including the probability of shares losing value, noted CBS News. It is hard to say how Trump Media’s shares will trade given the company reportedly lost $49 million in the first nine months of last year.

Trump Media’s main asset Truth Social, which was launched in 2022, also lags far behind its rival social media platforms such as Facebook, X and Instagram in terms of both users and advertisers, reported CBS News. To date, about one crore people, all in the US, have downloaded the Truth Social app, NYT reported citing data provider Sensor Tower.

As per a regulatory filing, Trump Media generated $3.3 million in advertising revenue in the first nine months of 2023, and “expects to incur significant losses into the foreseeable future”.

“Given the fact that their sales last year were less than $5 million, and they’re losing significant money, it is hard to believe that the long-term economic value of this company could even be as high as $100 million,” Harry Kraemer, a professor specialising mergers and acquisitions at Northwestern University’s Kellogg School of Management, told CBS News.

Another expert predicts a worse future for the company.

“With Trump Media, I expect that it will collapse but whether it’s going to occur a week from now or two years from now and how rapidly … those things are really difficult to predict,” University of Florida finance professor Jay Ritter, who tracks public listings, told BBC.

With inputs from agencies