The Potential $3 Billion Boost in Donald Trump's Future Amid Financial Struggles

Former President Donald Trump is facing significant financial and legal challenges, but he may soon receive a multi-billion dollar windfall.

Trump Media & Technology Group, which owns Truth Social, Trump's struggling social media platform, is close to going public after overcoming various legal and regulatory hurdles.

If shareholders vote on Friday to approve Trump Media’s merger with a blank-check company, Trump will own a dominant stake in a public company, with shares worth more than $3 billion at current market prices.

However, experts tell CNN there are several practical, financial, and legal reasons why this deal is unlikely to solve Trump’s upcoming cash shortage, even if it is approved.

Matthew Kennedy, senior initial public offering market strategist at Renaissance Capital, mentioned that President Trump won't be able to immediately profit from that stake.

Trump has until Monday to post a $464 million bond in New York's civil fraud case. If he fails to do so, New York's attorney general might attempt to seize his golf course and private estate north of Manhattan, or other assets.

Trump has some good news - shareholders have strong reasons to support the merger with Digital World Acquisition Corp. If shareholders give the thumbs up, Trump could become the top shareholder with a stake of at least 58.1%, as per filings.

Under the merger agreement, Trump is set to have approximately 79 million shares of the new public company. This number could increase by tens of millions more if specific targets are achieved.

Based on Digital World's current share price of about $43, this significant ownership would be valued at $3.4 billion - at least theoretically.

The merger is expected to close quickly according to regulatory filings. The companies anticipate finalizing the merger on the second business day after the shareholder vote is approved. This paves the way for trading to commence under the new name and ticker symbol by Tuesday or Wednesday, although there is a possibility it may take a bit longer, as mentioned by Kennedy.

‘Clearly a bubble’

The bad news is that this stake is not as liquid as it sounds. Those paper gains would be very difficult for Trump to translate to actual cash.

According to Charles Whitehead, a law professor at Cornell Law School, Trump's shares in this company are actually less liquid than his real estate holdings.

Experts point out that the market is overvaluing Trump Media significantly, primarily due to the company's fundamentals.

Trump would find it difficult to sell or use the stock as collateral because it is considered overvalued. According to Yale law professor Jonathan Macey, the stock price is inflated and not a wise investment choice for any investor, especially if they plan to hold it for a long period.

SEC filings indicate Trump Media’s revenue amounted to just $1.1 million during the third quarter. The company posted a loss of $26 million that quarter.

Truth Social’s shrinking user base

Truth Social seems to be getting smaller. According to data from Similarweb shared with CNN, the number of monthly active users in the US on iOS and Android has decreased by 39% compared to last year. Despite this, Truth Social is still much smaller than X (formerly Twitter), which is also experiencing a decline in user numbers, albeit at a slower rate.

Jay Ritter, a finance professor at the University of Florida, believes that the current market price is extremely difficult, if not impossible, to justify. According to Ritter, the stock is significantly overvalued and falls into the category of meme stocks where the price is not aligned with its true value. Meme stock investors typically follow the "greater fool theory" of investing, hoping to sell the stock to someone else at a higher price in the future, despite its current overvaluation.

Insiders can’t sell right away

But even in the unlikely event that Trump found a taker for those shares, experts say he is likely not allowed to sell or pledge that stock – at least not yet.

In deals like this, some shareholders have to wait before they can sell their shares. This is known as a lock-up period to prevent insiders from selling right away.

According to Whitehead, people are hesitant to invest in a company if the main shareholder, who is also the face of the main product, is selling their shares.

Key shareholders of Trump Media, along with the management team, have made a commitment not to sell their common stock for six months. This decision aims to provide stability to the leadership and governance of the company, as stated in SEC filings.

This agreement not only prohibits the key shareholders from selling their stock for six months, but also restricts them from engaging in any activities such as lending, offering, pledging, encumbering, or donating the stock during this period.

If the share price stays above $12 for a period of time, it’s possible that insiders can sell or pledge their stock 150 days after the deal closes.

Banks may balk

In addition, there are more restrictions on selling shares in a revised charter that experts believe may apply to Trump. These restrictions prevent some shareholders from selling right after the deal is finalized.

According to Whitehead, if Trump's shares fall under the charter's lock-up rules, he cannot use them as collateral unless the charter is changed.

Amending the charter would pose a challenge, even for Trump with his significant influence over the company. Any changes to the charter would need to be disclosed in advance as it could impact potential stock buyers.

According to Whitehead, President Trump cannot make these amendments quietly. If he decides to change the charter without disclosing it, it could lead to issues. It would seem suspicious if after a merger vote, President Trump suddenly suggests amending the charter out of nowhere.

Even if Trump manages to overcome these difficult challenges, there is still no assurance that any bank would accept this stock as collateral for a loan.

According to Whitehead, a significant shareholder pledging their stake may cause concern for banks. They must consider the possibility that the stock could plummet if Trump decides to sell his position.

Editor's P/S:

The financial and legal challenges facing former President Trump are significant, and the potential windfall from Trump Media & Technology Group's public offering may not be the solution he needs. While the deal could theoretically make Trump a billionaire, experts warn that the value of his stake is inflated and that he may not be able to access the funds he needs immediately. The lock-up period and restrictions on selling shares further complicate matters, making it unlikely that the deal will solve Trump's upcoming cash shortage.

The overvaluation of Trump Media's stock is a major concern, as it makes it difficult for Trump to sell or use the stock as collateral. The company's weak financial performance and declining user base raise further doubts about the long-term viability of the investment. It remains to be seen whether Trump can overcome these challenges and secure the financial relief he needs, but the obstacles he faces are substantial.