Photo by Trump’s Financial Gamble: Can the Stock Market Save Him?
In a surprising turn of events, Donald Trump finds himself in a financial predicament, facing a hefty $464 million fraud fine. The question on everyone’s mind now is whether the stock market can come to his rescue.
Trump Media, the company behind the social media platform Truth Social, is on the brink of going public. Shareholders of Digital World Acquisition Corp have voted in favor of acquiring Trump Media, paving the way for Mr. Trump to hold a substantial stake of at least 58% in the merged entity, valued at nearly $3 billion based on Digital World’s current share prices.
The potential windfall for Mr. Trump is indeed remarkable, especially considering the precarious position of Truth Social highlighted by its own auditor’s concerns about its viability.
Despite the glaring red flags surrounding the deal, including ongoing legal battles with former business partners and an $18 million settlement over fraud charges related to the merger, supporters of Digital World remain optimistic.
“This is just the start,” remarked Chad Nedohin, a vocal supporter of the deal, emphasizing the long-term prospects of the merger.
The approval of the acquisition saw Digital World’s shares plummet by over 13%, closing the day at $36.94. Interestingly, the majority of Digital World’s backers are individual investors, many of whom are believed to be loyal to Trump.
Digital World, known as a Special Purpose Acquisition Company (SPAC), is set to be rebranded as Trump Media & Technology Group and could soon be listed on the Nasdaq stock exchange under the ticker symbol DJT.
While the deal presents a lucrative opportunity for Mr. Trump, it may not immediately resolve his financial woes, such as the significant fraud penalty he faces in New York.
The former president is restricted from selling or transferring his shares for at least six months, unless the new company grants him an exemption. Alternatively, Mr. Trump could explore the option of securing a loan backed by the shares, although analysts caution that the actual loan amount may fall short of the shares’ paper value due to inherent business risks.
Despite the uncertainties, some of Trump’s supporters remain hopeful that the merger’s success could bolster his financial standing.
“If the merger goes through smoothly and Trump gains shares worth billions, he could leverage them for a loan,” speculated a supporter, underscoring the potential financial implications.
The risk of financial loss for Digital World shareholders looms large, with share prices experiencing a downward trend since the announcement of the Trump Media acquisition in 2021. However, even after the recent decline, the valuation of Trump Media hovers around $5 billion, a substantial figure considering its modest revenue of $3.3 million and significant losses.
The merger is expected to inject over $200 million in cash into Trump Media, providing the company with resources for expansion and development. Despite its promising future, Truth Social, positioned as an alternative to mainstream social media platforms like Twitter and Facebook, remains relatively small.
According to regulatory filings, Truth Social boasts approximately 8.9 million sign-ups, but lacks detailed metrics on user engagement. In contrast, established platforms like Elon Musk’s X (formerly Twitter) have garnered significantly higher user traffic, raising questions about Truth Social’s competitive position.
Analysts view Digital World as a classic example of a “meme stock,” where share prices detach from underlying fundamentals, potentially leading to a future decline.
“The fate of Trump Media is uncertain, with a collapse looming on the horizon. The timing and extent of this collapse, however, remain unpredictable,” remarked finance professor Jay Ritter.
As individual investors rushed to acquire Digital World stock following the Trump deal announcement, professional firms have shown less interest in recent weeks, signaling a shift in market dynamics.
Despite the uncertainties, one thing remains clear - Donald Trump stands to gain significantly from the merger, leveraging his brand and online presence to secure a potentially lucrative outcome.
