\n
![](\"https:\/\/content.fortune.com\/wp-content\/uploads\/2024\/03\/AP24080739682207.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
The Wall Street debut of Donald Trump\u2019s Truth Social network could give him stock worth billions of dollars on paper. But the former president probably will not be able to cash it out right away, unless some things change.<\/p>\n
The longer-term outlook for the business is highly questionable. Trump\u2019s company has said it expects to continue losing money for a while, and at least one expert says it\u2019s likely worth far less than the stock market suggests.<\/p>\n
Trump\u2019s pending return to Wall Street comes down to a vote scheduled for Friday by shareholders of a company named Digital World Acquisition Corp., which at the moment is essentially just a pile of cash. The corporation hopes to merge with Trump Media & Technology Group, the company behind Truth Social that goes by TMTG. If the shareholders approve the deal, TMTG could soon see its stock trading on the Nasdaq<\/a> in Digital World\u2019s place.<\/p>\n Here\u2019s a look at the proposal and Trump\u2019s role in it.<\/p>\n Shareholders of Digital World are scheduled to vote on whether to approve a merger with TMTG, where Trump is the chairman. Digital World is what\u2019s called a special purpose acquisition company, or SPAC, or \u201cblank-check company.\u201d<\/p>\n SPACs raise cash and then hunt for companies to merge with. Such deals give the target companies a potentially quicker and easier way to get their stocks onto the New York Stock Exchange or Nasdaq. The arrangement lets them avoid some of the paperwork associated with traditional initial public offerings of stock, or IPOs.<\/p>\n For investors, SPACs offer a way to get into hyped, potentially faster-growing companies such as TMTG, the DraftKings<\/a> betting service or SoFi banking.<\/p>\n It happens, but only rarely. This vote looks likely to pass given how high Digital World\u2019s stock has jumped on excitement about Trump. It finished Thursday at $42.81 per share. It\u2019s already up nearly 145% so far this year, towering over the roughly 10% gain for the S&P 500 index.<\/p>\n Many of Digital World\u2019s investors are small-time investors who are either fans of Trump or trying to cash in on the mania, instead of big institutional and professional investors.<\/p>\n Digital World will merge with TMTG. The stock will continue to trade under Digital World\u2019s ticker, DWAC, possibly for a couple of days to a couple of weeks, experts say. Then at some point, companies in SPAC deals usually announce that their stock will begin trading under the new ticker symbol.<\/p>\n Trump\u2019s company hopes to trade under the ticker symbol DJT, the former president\u2019s initials. The same ticker symbol was used by Trump Hotels & Casino Resorts before it filed for Chapter 11 bankruptcy protection in 2004.HOW MUCH WILL TRUMP GET?<\/p>\n Trump will own most of the new, combined company, or nearly 78.8 million shares, which would account for at least 58%. Multiply that by Digital World\u2019s current stock price of more than $40, and the total value could surpass $3 billion.<\/p>\n Trump faces a $454 million judgment in a fraud lawsuit, among other financial burdens. But he cannot sell easily for at least six months. That\u2019s because major TMTG shareholders will be under what\u2019s called a \u201clock-up\u201d provision, a common restriction on Wall Street that keeps big, early investors from immediately dumping their shares. Such sales could tank the stock\u2019s price.<\/p>\n Investors under the lock-up deal cannot sell, lend, donate or encumber their shares for six months after the close of the deal. Legal experts say \u201cencumber\u201d is a powerful word that could prevent Trump from using the stock as collateral to raise cash before six months have elapsed.<\/p>\n There are a few exceptions, such as by transferring stock to immediate family members. But in such cases, the recipients would also have to agree to abide by the lock-up agreement.<\/p>\n Digital World could waive the lock-up agreement before the deal closes. Or, in what some legal experts say could be a more likely path, the new company\u2019s board could decide to alter the lock-up agreement after the deal closes.<\/p>\n Such a decision by the board could open those directors up to legal scrutiny. They would need to show they\u2019re doing it to benefit shareholders.<\/p>\n But if the value of Trump\u2019s brand is key to the company\u2019s success, and if easing the lock-up agreements could preserve that brand, it could make for a case that would at least spare board members\u2019 lawyers from getting laughed out of court immediately.<\/p>\n Some companies\u2019 boards in the past have altered lock-up agreements to allow investors to sell earlier.<\/p>\n Mostly people put forth by TMTG, including the former president\u2019s son, Donald Trump Jr., if all goes as expected. Former Republican Rep. Devin Nunes would be a director and the company\u2019s CEO.<\/p>\n Also on the board would be Robert Lighthizer, who served as Trump\u2019s U.S. trade representative, and Linda McMahon, who ran the Small Business Administration under Trump.<\/p>\n Every stock has risks. Digital World has filed 84 pages with U.S. regulators to list many of its risks and those of TMTG.<\/p>\n One risk, the company said, was that as a controlling stockholder, Trump would be entitled to vote his shares in his own interest, which may not always be in the interests of all the shareholders generally.<\/p>\n It also cited the high rate of failure for new social media platforms, as well as TMTG\u2019s expectation that the company will lose money on its operations \u201cfor the foreseeable future.\u201d The company lost $49 million in the first nine months of last year, when it brought in just $3.4 million in revenue and had to pay $37.7 million in interest expenses.<\/p>\n \u201cIt\u2019s losing money, there\u2019s no way the company is worth anything like\u201d what the stock price suggests, said Jay Ritter, an IPO specialist at the University of Florida\u2019s Warrington College of Business.<\/p>\n \u201cHere, given the stock price is so divorced from fundamental value, it\u2019s kind of the same issue that came up with meme stocks,\u201d he said, recalling companies whose share prices once soared far beyond what professionals considered rational. \u201cWith AMC and GameStop<\/a>, the price was way above fundamental value, and there\u2019s the question of: Can you get out before the music stops?\u201d<\/p>\n<\/div>\nWHAT HAPPENS FRIDAY?<\/h2>\n
DO SHAREHOLDERS EVER SAY NO?<\/h2>\n
WHAT HAPPENS IF THE SHAREHOLDERS APPROVE?<\/h2>\n
TRUMP NEEDS CASH, RIGHT? CAN HE SELL RIGHT AWAY?<\/h2>\n
SO DEFINITELY NO CASH RIGHT AWAY?<\/h2>\n
WHO WILL BE ON THIS COMPANY\u2019S BOARD?<\/h2>\n
IS THIS A SAFE INVESTMENT?<\/h2>\n
Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n