Trump Media’s impending merger could provide him with a financial lifeline
Former President Donald J. Trump’s stake in Trump Media & Technology Group, his social media company, could be worth as much as $4 billion once a long-delayed merger is completed.
The deal with Digital World Acquisition Corp. – a publicly traded shell company – could offer him a potential financial lifeline at a time when he needs to come up with the money to pay a $454 million fine following a New York judge’s ruling in a civil case. fraud case.
Digital World has scheduled a shareholder vote for March 22 on its merger with Trump Media, whose flagship, Truth Social, has become the social media platform of choice for Mr. Trump to attack his critics and political opponents.
But even if the deal closes, Trump would have to get relief from a lock-up provision that bars major shareholders from selling shares for at least six months. Trump Media did not respond to a request for comment.
Here’s a look at the challenges the deal has faced, and what awaits Mr. Trump if it closes.
Why did it take so long for the merger between Trump Media and Digital World to be completed?
The proposed merger between Trump Media and Digital World, a special purpose acquisition company, or SPAC, was announced in October 2021. But the deal was held up by a two-year investigation by the Securities and Exchange Commission into talks between the companies that took place before Digital World went public. SPACs, which sell shares to investors before they can buy a company, are not supposed to have a deal lined up before their IPO Digital World raised $300 million in its September 2021 initial public offering.
Last July, Digital World agreed to pay an $18 million fine to the SEC and revise company filings to better reflect the nature of those early negotiations. The SEC signed the merger document this month, paving the way for the shareholder vote.
The deal was also hampered by a criminal investigation, in which federal prosecutors accused three men of participating in a scheme to profit from the October 2021 merger announcement. The men will go on trial in Manhattan federal court on April 29.
How many shares will Mr. Trump own?
Mr. Trump will have an overwhelming majority stake in the company after the merger, owning 79 million shares. Shares of Digital World have soared this year on expectations that the deal will be completed and Mr. Trump will win the Republican nomination for president. The stock traded at $47 per share on Monday. At that price, the former president’s stake would be worth nearly $4 billion.
Why can’t Mr. Trump trade or sell his stocks right away?
The merger documents contain fairly standard language restricting major shareholders like Mr. Trump from selling shares for six months after the deal closes.
Lockup provisions, which are common in SPAC deals, are intended to assure investors that major shareholders won’t immediately cash out after a merger is completed, said Kristi Marvin, a former investment banker and founder of SPACInsider, a SPAC database. If a flood of restricted stock immediately hits the market, it could depress the stock price.
Digital World’s lock-up provision also limits large shareholders from using the shares as collateral for a loan during that six-month period.
Can Mr. Trump transfer shares during the lock-up period?
Yes. The provision allows a major shareholder like Mr. Trump to transfer shares to a trust. A trust backed by some of Mr. Trump’s shares could potentially use those shares as collateral for a loan. He can also transfer shares to an immediate family member.
Can the lock-up provision be lifted or amended?
Yes. The merger document states that Digital World reserves the right to waive this provision “upon or prior to the closing” of the merger, and that would be the easiest way around it, securities experts said.
Trump Media’s board can also amend the post-merger provision to allow limited sales of shares during the six-month waiting period.
Are there risks associated with changing the lock-up conditions?
Changes to lockup terms that lack sound business rationale could open the door to shareholder lawsuits. This is especially true if the share price subsequently falls sharply, according to several securities experts.
How quickly can the deal be completed?
SPAC mergers typically close within a few days of shareholder votes. Once the deal closes, Digital World’s shares, which currently trade on the Nasdaq under the stock symbol DWAC, are expected to adopt the symbol DJT.
The first publicly traded company Trump was associated with – Trump Hotels and Casino Resorts – also traded under DJT. Bankruptcy was filed for in 2004.
What else could derail the deal?
The most obvious obstacle would be if Digital World shareholders voted down the proposal. But that’s unlikely since most of the company’s roughly 400,000 shareholders are retail investors who had questioned the pace of the SEC’s investigation into the deal in online posts on Truth Social and other social media platforms.
Digital World warned somewhat cryptically in a Feb. 23 filing that “parties that may have political, economic or non-economic motives” could try to delay the merger or block it altogether.
Could the insider trading charges delay the merger?
That’s unlikely. Two brothers and a former Digital World executive have been accused of taking part in an insider trading scheme that netted $22 million in illegal profits.
The court filings include the names of a few other people who appear to have acted in time to announce the merger, but none have been accused of any wrongdoing. There is no evidence that anyone associated with Trump Media was involved in the improper trading.