Wall Street debut of Truth Social network could mean stock worth billions for Trump
NEW YORK — The Wall Street debut of Donald Trump’s Truth Social network could give him stock worth billions of dollars on paper. But the former president probably will not be able to cash it out right away, unless some things change.
The longer-term outlook for the business is highly questionable. Trump’s company has said it expects to continue losing money for a while, and at least one expert says it’s likely worth far less than the stock market suggests.
Trump’s pending return to Wall Street comes down to a vote scheduled for Friday by shareholders of a company named Digital World Acquisition Corp., which at the moment is essentially just a pile of cash. The corporation hopes to merge with Trump Media & Technology Group, the company behind Truth Social that goes by TMTG. If the shareholders approve the deal, TMTG could soon see its stock trading on the Nasdaq in Digital World’s place.
Here’s a look at the proposal and Trump’s role in it.
WHAT HAPPENS FRIDAY?
Shareholders of Digital World are scheduled to vote on whether to approve a merger with TMTG, where Trump is the chair. Digital World is what’s called a special purpose acquisition company, or SPAC, or “blank-check company.”
SPACs raise cash and then hunt for companies to merge with. Such deals give the target companies a potentially quicker and easier way to get their stocks onto the New York Stock Exchange or Nasdaq. The arrangement lets them avoid some of the paperwork associated with traditional initial public offerings of stock, or IPOs.
For investors, SPACs offer a way to get into hyped, potentially faster-growing companies such as TMTG, the DraftKings betting service or SoFi banking.
DO SHAREHOLDERS EVER SAY NO?
It happens, but only rarely. This vote looks likely to pass given how high Digital World’s stock has jumped on excitement about Trump. It was trading Thursday above $40 per share. It’s already up roughly 140% so far this year, towering over the 10% gain for the S&P 500 index.
Many of Digital World’s investors are small-time investors who are either fans of Trump or trying to cash in on the mania, instead of big institutional and professional investors.
WHAT HAPPENS IF THE SHAREHOLDERS APPROVE?
Digital World will merge with TMTG. The stock will continue to trade under Digital World’s ticker, DWAC, possibly for a couple of days to a couple of weeks, experts say. Then at some point, companies in SPAC deals usually announce that their stock will begin trading under the new ticker symbol.
Trump’s company hopes to trade under the ticker symbol DJT, the former president’s initials. The same ticker symbol was used by Trump Hotels & Casino Resorts before it filed for Chapter 11 bankruptcy protection in 2004.
HOW MUCH WILL TRUMP GET?
Trump will own most of the new, combined company, or nearly 78.8 million shares, which would account for at least 58%. Multiply that by Digital World’s current stock price of more than $40, and the total value could surpass $3 billion.
TRUMP NEEDS CASH, RIGHT? CAN HE SELL RIGHT AWAY?
Trump faces a $454 million judgment in a fraud lawsuit, among other financial burdens. But he cannot sell easily for at least six months. That’s because major TMTG shareholders will be under what’s called a “lock-up” provision, a common restriction on Wall Street that keeps big, early investors from immediately dumping their shares. Such sales could tank the stock’s price.
Investors under the lock-up deal cannot sell, lend, donate or encumber their shares for six months after the close of the deal. Legal experts say “encumber” is a powerful word that could prevent Trump from using the stock as collateral to raise cash before six months have elapsed.
There are a few exceptions, such as by transferring stock to immediate family members. But in such cases, the recipients would also have to agree to abide by the lock-up agreement.