How does Trump stand to make $3bn from Truth Social being listed on the market?
Donald Trump racked up a paper fortune of $3bn on Friday when the Truth Social, the social media platform he created, completed a merger that listed the company on the US stock market.
Shareholders in Digital World Acquisition, the listed vehicle set to turn into Trump Media & Technology, approved the transaction on Friday morning, in a move that could boost Trump’s wealth considerably.
How could Trump add more than $3bn to his wealth?
Trump Media & Technology business, which owns the Truth Social tech platform, has merged with a so-called special purpose acquisition company – or Spac – called Digital World Acquisition. Spacs list on a stock exchange to raise money and then buy or merge with a company, which in this case is Trump’s media firm.
Trump Media has generated sales of less than $5m since its launch in 2021. But, boosted by Trump supporters, Digital World shares have risen 140% this year and are currently trading at just under $42. Trump will own 78.75m shares in the newly combined business, meaning at that price Trump’s stake would be worth $3.3bn.
Why is Trump’s stake worth so much if Truth Social has made so little?
Digital World is a meme stock, the term for an equity that is boosted by amateur investors on online forums via internet memes (an image, video or piece of text that is copied and passed around, often re-emerging with slight alterations).
The most famous example of meme stock-boosting is GameStop, a US video game retailer that, although it appeared to be trending downwards in terms of its business prospects, suddenly attained a valuation of more than $22bn at the peak of a buying frenzy in 2021 – but is now worth just over $4bn.
In one meme example on the Digital World page on Reddit, a photograph of Trump pointing is emblazoned with the slogan “He’s Right! Get More DWAC [Digital World Acquisition Corp]!” Another shows a bald eagle carrying the US flag in its talons with the letters DWAC above it.
Julian Klymochko, the chief executive of Accelerate Financial Technologies, which has a Spac-focused fund, says Digital World’s soaring valuation has become detached from the fundamental value of Trump Media and its sales of less than $5m.
“The stock’s market capitalisation is completely unhinged from its underlying fundamental business value. The stock price is solely based on being a meme stock,” he says.
Can Trump cash in his stake?
Trump will not be able to sell his shares immediately: as is standard with Spac deals, major shareholders cannot sell their stock for six months after the transaction.
Does Trump need the money?
Trump has $400m in cash plus properties and other investments, but he needs to find nearly half a billion dollars by Monday. A New York judge has formally ordered him to pay $454m following a civil fraud case that determined he manipulated the value of his properties to obtain advantageous loan and insurance rates. And this week his lawyers said it was “a practical impossibility” for him to obtain the bond he needs to guarantee the payment, after 30 surety companies turned him down.