Trump could become up to $3 billion richer by taking Truth Social public

Investors approved a deal Friday to make Truth Social's owner, Trump Media, a publicly traded company.

Shareholders' green light clears a major hurdle for a long-delayed merger that will generate a billion-dollar windfall for former President Donald Trump at a time when he faces immense financial and legal pressure.

According to a preliminary vote total announced during the meeting, the majority of Digital World Acquisition Corp. voted in favor of the merger deal with Trump Media. The companies indicated that the merger could be completed early next week.

The new company will be called Trump Media & Technology Group and will trade under the code DJT, the initials of Donald J. Trump. She will own Trump's social media platform, Truth Social.

Shareholders voted to approve the merger of Trump Media with a “blank check” company, which is created with the aim of raising funds to buy other companies via public capital, after years of legal and regulatory obstacles. Trump will have a dominant stake in a public company, with shares worth more than three billion dollars at current market prices.

However, experts tell CNN that there are numerous practical, financial and legal reasons why this deal is unlikely to resolve Trump's looming cash crisis.

“Former President Trump will not be able to monetize that share immediately,” said Matthew Kennedy, senior initial public offering market strategist at Renaissance Capital.

Monday (25) is the deadline for Trump to post the $464 million bail in the New York civil fraud case against him. If payment is not made, the New York attorney general could seek to seize the golf course and private property north of Manhattan or other Trump assets.

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

Upon receiving the green light from shareholders, Trump will be the dominant shareholder, with a stake of at least 58.1%, according to the documents.

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

With Digital World's share price at around $43 each on Thursday, this massive stake would be worth $3.4 billion, at least on paper. But Digital World shares were volatile on Friday and closed 14% lower.

The merger could close quickly.

Regulatory filings indicate the companies expect to close the merger on the second business day after the shareholder vote is approved. This sets the stage for trading to begin on the new name and ticker symbol by Tuesday the 26th or Wednesday the 27th, although it could take longer, according to Kennedy.

But the agreement still faces legal uncertainty. There is ongoing litigation seeking to block the closing of the merger.

'Clearly a bubble'

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

In fact, Trump's shares in this company are, 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 drastically overstating Trump Media based on the company's fundamentals.

This means that Trump would have difficulty selling the shares at inflated prices or even using them as collateral.

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

SEC filings indicate that Trump Media's revenue reached just $1.1 million during the third quarter. The company recorded a loss of 26 million dollars this quarter.

Truth Social's user base is shrinking

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

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

And yet, Trump Media is being valued at more than six billion dollars on a fully diluted basis, which includes all shares and options that could be converted into common stock, according to Jay Ritter, a finance professor at the University of Texas. from Florida.

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

“It’s very overvalued,” Ritter said. “It qualifies as a meme stock for which the price is decoupled from fundamental value… Meme stock investors are generally buying based on the Fool's Investment Theory: It is overvalued today, but expect to make money selling it to a fool even bigger tomorrow at an even higher price.”

Anyone inside will not be able to sell immediately

But even in the unlikely event that Trump has found a buyer for those shares, experts say it's likely he won't be able to sell or pledge those shares — at least not yet.

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

“Nobody wants to buy into a company where the biggest shareholder — and really the face of the biggest product — is selling,” Whitehead said.

In this case, Trump Media's major shareholders, including its management team, agreed not to sell their common shares for six months to maintain “important stability for the leadership and governance” of the company, according to SEC filings.

Not only does this lock-up agreement prevent these key shareholders from selling their shares for six months, but it says they have agreed not to “lend, offer, pledge…encumber, give away” that stock during the period.

If the share price remains above $12 for a period of time, it is possible that insiders could sell or pledge their shares 150 days after the deal closes.

“The closure should 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 prevents them from proofing the shares, like with a margin loan. So it will be difficult to find a way to use these shares to make money for now.”

Banks can refuse

Additionally, there are additional lockdown restrictions contained in a letter that experts say includes Trump. This lock also restricts certain shareholders from selling immediately after the deal closes.

“If his actions are covered by the blocking provisions of the charter, then without an amendment to the charter, President Trump cannot promise those actions. Period,” Whitehead said.

And changing the charter would be complicated – even for Trump and his outsized influence over the company. This is the type of thing that would have to be disclosed in advance, because it would impact potential buyers of the shares.

“He can’t do it sneakily. If President Trump intends today to change the letter and they are not disclosing that intention, that is a problem,” Whitehead said. “Presumably, they would need to say that Trump, after agreeing to the vote that approved the merger, woke up the next morning and said, 'Hey, let's amend the charter.'”

Now, even if Trump were to overcome these potentially insurmountable obstacles, there is no guarantee that any bank would take these shares as collateral on a loan.

“If I’m a bank, I’m going to be concerned about the idea of ​​a significant shareholder compromising their stake,” Whitehead said. “Any bank doing a proper credit analysis should be sensitive to the fact that this stock could very well tank if President Trump is looking to sell the position.”