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Trump’s Truth Social IPO plan to raise $3bn may not end his cash woes
Trump Media merger approved, but financial experts warn of cash crunch and challenges in monetizing stake due to lock-up restrictions.
Investors have given the green light for Truth Social's parent company, Trump Media, to go public in a deal that is expected to make former President Donald Trump billions. The approval from shareholders is a significant step forward for the long-awaited merger with Digital World Acquisition Corp., potentially closing as early as next week.
Upon completion of the merger, the company will be renamed Trump Media & Technology Group and will trade under the ticker symbol DJT, derived from Trump’s initials. The new entity will own the social media platform Truth Social, which has been struggling to gain traction.
Despite the positive news for Trump, financial experts warn that the merger is unlikely to alleviate his current cash crunch due to various practical, financial, and legal challenges.
Financial and Legal Challenges Ahead
Trump's stake in the new company is valued at over $3 billion based on current market prices. However, Matthew Kennedy, a senior IPO market strategist at Renaissance Capital told CNN that Trump won't be able to immediately monetize this stake. Trump faces a looming deadline on Monday to post a $464 million bond in New York’s civil fraud case against him. Failure to meet this deadline could result in the seizure of his assets, including his golf course and private estate north of Manhattan.
The merger agreement stipulates that Trump will own approximately 79 million shares of the new public company, with potential for more if certain goals are achieved. At Digital World’s recent share price of $43, this stake would be worth $3.4 billion.
Lock-up Period and Collateral Concerns
Even if Trump were to find a buyer for his shares, he is likely restricted from selling or pledging the stock immediately. Shareholders, including the management team of Trump Media, have agreed to a six-month lock-up period to maintain stability in the company’s leadership and governance. This agreement prevents them from selling, lending, or pledging their stock during this period. This lock-up makes it difficult for Trump to use his shares to secure cash.
Furthermore, there are additional lock-up restrictions in an amended charter that seemingly include Trump. Amending the charter would require disclosure and could deter potential buyers of the stock.
While the merger approval is a significant milestone for Trump Media, it is unlikely to resolve Trump’s immediate financial challenges. The company’s overvaluation, declining user base, and lock-up restrictions make it difficult for Trump to monetize his stake and address his pressing financial obligations. As the merger moves forward, all eyes will be on Trump’s next steps to navigate these complex financial and legal hurdles.
