CNN
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Former President Donald Trump is poised to reap a multibillion-dollar windfall at a time when he is under financial and legal pressure.
Trump Media & Technology Group, the owner of President Trump's ailing social media platform Truth Social, is on the brink of going public as early as next week after years of regulatory hurdles. ing.
If shareholders vote Friday to approve Trump Media's merger with the blank check company, Trump would own a controlling stake in a public company worth more than $3 billion at current market prices. Become.
But experts told CNN there are a number of practical, financial and legal reasons why the deal, even if approved, is unlikely to solve President Trump's looming funding shortfall. He said there is.
“President Trump won't be able to monetize that stock right away,” said Matthew Kennedy, senior initial public offering markets strategist at Renaissance Capital.
Trump faces a Monday deadline to post $464 million bail in the New York state civil fraud case against him, or the New York attorney general will take over his golf course, private property north of Manhattan, Or they may try to seize other assets.
The good news for President Trump is that there is a strong incentive for shareholders to approve a merger with Digital World Acquisition Corporation.
If given the go-ahead by shareholders, Trump would be a major shareholder with at least a 58.1% stake, according to the filing.
The merger agreement calls for Mr. Trump to own about 79 million shares in the newly public company, with the possibility of holding tens of millions more if certain goals are met.
At Digital World's current share price of about $43, that huge stake would be worth $3.4 billion, at least on paper. Digital World shares are expected to rise further on Friday, rising another 3% above $44 in pre-market trading.
The merger may be completed quickly.
The companies expect to complete the merger within two business days after the shareholder vote is approved, according to regulatory filings. Kennedy said the deal should be ready to begin trading under the new name and ticker symbol by Tuesday or Wednesday, but could take longer.
The bad news for Trump is that the stock isn't as liquid as he thought. It will be very difficult for President Trump to convert these paper profits into real cash.
In fact, Trump's shares in the company are in many ways even less liquid than his real estate holdings, said Charles Whitehead, a law professor at Cornell Law School.
First, experts say the market is significantly overvaluing Trump Media based on the company's fundamentals.
That means Mr. Trump will have a hard time unloading his shares or even pledging them as collateral.
“Stock prices are clearly in a bubble,” Jonathan Macy, a law professor at Yale University, told CNN. “No rational investor would take a stock at face value, especially if they had to hold it for a long time.”
Trump Media had revenue of just $1.1 million in the third quarter, according to SEC filings. The company posted a loss of $26 million in the quarter.
Not only that, but Truth Social also appears to be shrinking.
Truth Social's U.S. monthly active users on iOS and Android are down 39% year-over-year, according to data from Similarweb shared with CNN earlier this month. Truth Social remains much smaller than X (formerly Twitter), and X (formerly Twitter) is also shrinking, but at a slower pace.
But Jay Ritter, a finance professor at the University of Florida, estimates that Trump Media's valuation is more than $6 billion on a fully diluted basis, including all shares that could be converted into common stock and It includes options.
Ritter said it is difficult, if not impossible, to justify the current market price.
“It's grossly overrated,” Ritter said. “This applies to meme stocks whose prices have diverged from their fundamental value…Meme stock investors typically buy based on the theory of the Great Fool in Investing: Overvalued today, but I I want to sell until even and make a profit.'' Tomorrow, bigger fools will pay an even higher price. ”
But even if Trump were to find a taker for these shares, experts say, he likely wouldn't be allowed to sell or pledge them, at least not yet.
As is common in such transactions, certain shareholders are subject to a lock-up period that prevents immediate sales by insiders.
“Nobody wants to buy into a company whose largest shareholder, and actually the face of its largest product, is for sale,” Whitehead said.
In this case, Trump Media's major shareholders, including management, will not sell their common stock for six months to maintain “stability that is important to the management and governance” of the company, according to SEC filings. He said he agreed.
This lock-up agreement not only prevents these major shareholders from selling their company's stock for six months, but also prohibits them from “loaning, offering, promising, encumbering, or donating” that stock during that period. He said he agreed to the.
If the stock price remains above $12 for a period of time, insiders may be able to sell or pledge their shares 150 days after the transaction closes.
“Lockups are intended to prevent insider sales immediately following a merger,” said Xavier Kowalski, a former partner at Schulte, Roth & Zabel and current lecturer at the University of Florida's School of Finance. . “You also won't be able to pledge your shares like you would with a margin loan. So it's going to be hard to find a way to use those shares to get cash at this point.”
Additionally, the revised charter includes additional lockup restrictions, which experts say will likely include President Trump. The lockup also restricts certain shareholders from selling immediately after the deal closes.
“If President Trump's stock is subject to the Charter's lockup provisions, President Trump cannot pledge this stock unless the Charter is amended. A dead stop,” Whitehead said.
And amending the charter would be difficult even for Mr. Trump and his extraordinary influence over the company. This needs to be disclosed upfront as it will influence potential buyers of the stock.
“He can't do this quietly. If President Trump is going to amend the Charter today and hasn't made his intentions clear, that's a problem,” Whitehead said. “We'll probably have to take the position that after the merger approval vote, President Trump woke up and suddenly said, 'Let's amend the Charter.'”
Now, even if President Trump overcomes these likely insurmountable obstacles, there is no guarantee that any bank will take this stock as collateral for a loan.
“If I were a bank, I would be bothered by the idea of a major shareholder giving away their shares,” Whitehead said. “Banks doing proper credit analysis have to be sensitive to the fact that this stock could very well fall if it turns out that President Trump is trying to sell his position.”