$3 Billion Windfall for Trump? Maybe, but Not Yet
The long-awaited merger between DWAG and TMTG was approved by shareholders today. While this SPAC endeavor is complex, the short story is a stock merger finally happened, such that a company with the stock symbol DJT will soon go public and its shares will trade on the open market. This company will own and operate the Truth Social platform that Trump uses and made famous. Trump himself will own at least 58% of the successor company DJT.
At it's present stock price (DWAG soon to be known as DJT), this represents a windfall of about $3 billion for Trump.
That's right ... a windfall of $3 BILLION for Trump.
Knowledgeable readers might recall that when this merger was in the news several weeks ago, the headlines spoke of a $4 billion windfall. What happened? How did $4 billion become $3 billion? The answer is simple. The stock price dropped. Investors are not willing to pay today what they were willing to pay before.
Today, the day the merger was finally and officially approved, the stock is down 5% on the news (price @ 11:14 EST).
While this is a clear windfall for Trump, and some would say a master business stroke, there are details to know.
First, as is typical of SPAC deals like this, Trump does not receive cash. He receives shares in DJT, and because he is a principle in the deal, his shares are restricted. This means he cannot sell, pledge, use as collateral, or do anything else with the shares for six months. That has nothing to do with Trump or politics. It is a standard provision for all SPAC deals.
While $3 billion is more than enough to cover all of Trump's bonds and legal bills for a long time, that money is useless to him for six months, because his DJT shares are restricted. It's like having a brand-new car but you're not allowed to drive it until six months have passed.
In those six months, the stock price will continue to change, as all publicly traded stock prices do. At some point, investors will look at the actual financial performance of the company that operate Truth Social. When they do, the stock price could plummet.
Current Numbers: TMTG (Trump Media), the company now running Truth Social, reported a $49 million net loss on $3.38 million in revenue for the first nine months of 2023. In other words ... Truth Social is a big, big, cash-sucking loser.
The other factor is, if Trump starts selling his shares to capture the cash he desperately needs, that will drive the stock down. When investors see the company's namesake and majority shareholder dumping his shares, that too will likely cause the stock price to plunge.
Yet another factor is Truth Social usage has been declining for some time now. Trump's presence on this platform is not providing a financial or usage boost; and nothing else is either.
So, yes. Congratulations are in order to Trump for this business achievement. But there is more to the story and it may not have a happy ending.
When the stock was first issued in Oct. 2021, it was issued at just under $10/share.
On the news hype of this initial public offering (IPO), the price skyrocketed to a high of $175.00. That spike was propelled by MAGA dupes who got excited over the chance to invest in the Trump name. Some of them got in at $20, $30, $50 a share. Others kept jumping in on the hype and paid $75, $100, $150 and even $175 for the exact same shares. It was OK with them, though... they were investing in Trump. What could go wrong?
A month or so later, the stock bottomed at around $41, leaving many of the MAGA dupes with a major paper loss.
The stock retraced from there, recapturing some of its initial surge, but it went on to give that up as it went down from there. It eventually settled in at $13 and ranged sideways at that level for quite a while. So now, even the people who bought in at $20 a share sat on a major loss.
In January, news broke that certain regulatory hurdles had been cleared and the merger was again on. That drove the stock price up to $58.72, but that did not hold. At the moment, on today's big news, the price is $39.39. But on today's news, unlike the super intoxicating IPO, there was no price spike. As I said above, the price is down 5% so far today.
Edit for UPDATE: near the session close, the stock is down 10.02% on this supposedly "big news" day.
Where will the price be six months from now when Trump can start selling his shares? What will become of his so-called windfall then? That's a question many investors and observers have in mind, including Trump.
www.forbes.com
