Donald Trump’s troubled SPAC agreement has finally been approved, coming just in time to clear his massive debt of almost half a billion dollars due to numerous legal actions. However, this deal is not a surefire solution and hinges on the board’s decision to allow Trump to sell.
Let’s explain all the acronyms in play. Digital World Acquisition Corporation (DWAC) is a special purpose acquisition company (SPAC) that has been working for years on a merger with Trump Media and Technology Group (TMTG), planning on listing under the NASDAQ as $DJT. However, this merger has faced obstacles such as shareholder hesitation, scrutiny from the Securities and Exchange Commission (SEC), and even grand jury subpoenas.
And these issues don’t take into account the potential difficulties facing Truth Social, the strongly partisan social network that was quickly established after Trump’s banishment from Twitter. Reports indicate that TMTG suffered a net loss of approximately $49 million in 2023, with revenues amounting to less than $4 million – certainly not impressive numbers.
Many problems have caused the DWAC-TMTG merger to be delayed time and time again, and it seemed that shareholders would eventually pull out when the time frame exceeded the parameters set in the SPAC terms.
However, today the two companies submitted all necessary paperwork to the SEC for the completion of the merger. With DWAC stock having increased in anticipation of this event, reaching over $42 per share, and with Trump as the largest shareholder, owning $79 million shares, he could potentially end up with a staggering $3 billion in equity in the newly formed company.
Timing could not be more advantageous for Trump on a personal level. He is required to post hundreds of millions in bond within an incredibly short time frame, or risk losing his assets as a result of a major fraud case in New York. This is in addition to other damages, loans, and ongoing legal battles that could further add to his debt. A $3 billion windfall would undoubtedly be a welcome relief for Trump – if he can manage to sell it.
Unfortunately, there is a major obstacle in the way – a “lock-up” condition stated in the merger agreement, stating that the board must approve any sale of stock by the company’s executives and top investors for the next six months.
It’s no secret that a significant number of shareholders in the newly public TMTG will sell their shares as soon as they are able. However, if Trump intends to use this money to pay off his current liabilities, he would have to sell off approximately 12 million shares at the current price – equating to roughly 15% of his total holdings. It remains to be seen whether the board will approve this.
The board is stuck between a rock and a hard place, with two conflicting scenarios. On one hand, if Trump were to sell off his shares immediately, it could send the stock plummeting, causing a cascade effect as other shareholders rush to dump their shares before they become completely worthless. On the other hand, if Trump isn’t able to secure this financial bailout, he could potentially go bankrupt, jeopardizing the entire enterprise.
One potential solution for Trump could be using his shares as collateral for a loan, with an understanding that they would not be sold until the end of the six-month lock-up period. However, finding someone willing to take a gamble on the value of these shares in six months’ time would not be an easy task. If the company’s stock were to drop below, say, $8 – a common occurrence in the world of SPACs – Trump’s entire stake might not even be enough to cover his debts in New York.
We don’t have an exact date for when $DJT will start trading, but if all the paperwork is approved, it should be happening very soon. This is certainly an unconventional and significant deal that we’ll be keeping a close eye on.
