Update: New Developments in Trump Media Merger and Financial Challenges

TFD – Discover the latest developments in Trump Media’s merger approval and the financial challenges it faces. Get insights into stock liquidity, lock-up periods, and potential charter amendments on TheFoxDaily.

Trump Media, the owner of Truth Social, will start trading on Tuesday when the transaction complete.

On Friday, a deal allowing Trump Media, the owner of Truth Social, to go public was approved by investors.

With shareholders’ approval, a significant obstacle has been removed for a long-delayed merger that would give former President Donald Trump a multibillion dollar windfall at a time when he is under intense legal and financial pressure.

A preliminary vote total revealed during the meeting indicated that the merger with Trump Media was approved by the majority of Digital World Acquisition Corp. shareholders. According to the corporations, the merger could be finalized as early as next week.

Trump Media & Technology Group will be the name of the new business, which will trade under Trump’s initials, DJT. It will be the owner of Trump’s faltering social media outlet Truth Social.

After years of legal and regulatory challenges, shareholders approved Trump Media’s merger with a business that gave it free reign. With shares in a public corporation valued at over $3 billion at current market values, Trump will hold a sizable portion of the business.

Experts told CNN that there are a number of pragmatic, economical, and legal reasons why this deal is unlikely to alleviate Trump’s impending financial crisis.

Senior initial public offering market strategist at Renaissance Capital Matthew Kennedy predicted that President Trump would not be able to immediately profit from that position.

In the civil fraud lawsuit brought against him by New York, Trump has until Monday to deposit a $464 million bond; failing to do so could result in the attorney general of New York trying to take his assets, including his private estate and golf course north of Manhattan.

The good news for Trump is that the combination with Digital World Acquisition Corp. has substantial shareholder incentives to be approved.

According to documents, Trump would be the largest stakeholder with a minimum of 58.1% of the company if shareholders approve it.

According to the merger agreement, Trump will possess about 79 million shares of the newly public corporation, and tens of millions more if certain targets are met.

That enormous holding would be worth $3.4 billion, at least theoretically, at Thursday’s share price of $43, which is what Digital World is trading for. However, Digital World’s stock was erratic on Friday, closing 14% down.

The merger might happen very soon.

The firms anticipate closing the merger on the second business day following the approval of the shareholder vote, according to regulatory filings. As a result, trading should start under the new name and ticker symbol by Tuesday or Wednesday, though Kennedy says it might take longer.

However, there is still legal ambiguity behind the purchase. A legal action is being taken to prevent the merger from closing.

“Undoubtedly a bubble”

The fact that this stake is not as liquid as it seems is bad news for Trump. It would be extremely challenging for Trump to convert those financial earnings into real money.

In fact, according to Cornell Law School professor Charles Whitehead, Trump’s stakes in this corporation are less liquid in many ways than his real estate holdings.

First, based on the company’s fundamentals, experts claim the market is grossly overvaluing Trump Media.

It follows that Trump would find it difficult to give up the stock or even pledge it as security.

According to CNN, Yale law professor Jonathan Macey stated, “The stock price is clearly a bubble.” “If an investor had to hold the stock for an extended period of time, they would never, ever accept it at face value,”

According to SEC filings, Trump Media’s revenue for the third quarter was a meager $1.1 million. During that quarter, the corporation reported a $26 million loss.

Truth Social’s declining user population

Furthermore, Truth Social seems to be getting smaller.

Relative to last year, the number of Truth Social’s monthly active users in the US on iOS and Android is down 39%, based on Similarweb statistics that CNN obtained earlier this month. Compared to X (previously Twitter), which is likewise decreasing but more slowly, Truth Social is still substantially smaller.

However, according to Jay Ritter, a finance professor at the University of Florida, Trump Media is valued at more than $6 billion on a fully diluted basis, which takes into account all stocks and options that could be converted to common stock.

Ritter stated that it is difficult, if not impossible, to defend the current market price.

Ritter declared, “It is wildly overpriced.” “It meets the criteria for a meme stock since its price is unrelated to its intrinsic value. The larger fool idea of investing, which states, “It’s overvalued today, but I hope to make money selling it to an even greater fool tomorrow at an even higher price,” is typically used by investors purchasing meme stocks.

Insiders cannot immediately sell

Experts predict that Trump is probably not permitted to sell or pledge that stock, at least not just yet, even in the remote chance that he finds a buyer for those shares.

Certain shareholders are subject to a lock-up period, which stops insiders from selling right away, as is customary in transactions such as this one.

According to Whitehead, “no one wants to invest in a company where the largest shareholder—and really the face of the biggest product—is selling.”

According to SEC filings, prominent shareholders of Trump Media, including the company’s management team, have decided not to sell their common stock for a period of six months in order to preserve “important stability to the leadership and governance” of the business.

These important shareholders have pledged not to “lend, offer, pledge…encumber, donate” their shares during the six-month lock-up agreement, which also prohibits them from selling it.

Insiders may be able to sell or pledge their stock 150 days after the deal closes if the share price remains over $12 for a certain amount of time.

“The lock-up is intended to prevent insiders from selling right after the merger,” explained Xavier Kowalski, a lecturer in the University of Florida’s finance department and a former partner at Schulte Roth & Zabel. Additionally, it prevents them from using the stock as collateral for a margin loan. Thus, for the time being, it will be challenging to figure out how to use those shares to raise money.

Banks might object.

Furthermore, experts claim that Trump appears to be covered by further lock-up limits included in a modified charter. Additionally, some shareholders are prohibited from selling as soon as the deal closes by this lock-up.

“Unless the charter is amended, President Trump is unable to pledge this stock if his shares are subject to the lockup rules. Complete halt,” stated Whitehead.

It would also be difficult to change the charter, even with Trump’s enormous influence over the business. That’s the kind of information that would need to be made public in advance since it could affect stock buyers.

He is unable to work in silence. There is an issue if President Trump wants to change the charter today but isn’t revealing his plans, according to Whitehead. “They would presumably have to say that President Trump suddenly woke up and said, ‘Hey, let’s amend the charter,'” following the merger vote approval.

However, there’s no assurance that a bank would accept this stock as collateral for a loan, even if Trump managed to overcome these seemingly insurmountable challenges.

“The idea of a major shareholder pledging his stake is going to trouble me if I’m a bank,” stated Whitehead. “Any bank conducting a thorough credit analysis needs to be aware that this stock could collapse if it becomes apparent that President Trump intends to reduce his position.”

A background update and new developments have been added to this story.