- Written by Natalie Sherman
- Business Correspondent, New York
Image source, Getty Images
Donald Trump appears to be desperate for money to pay a $464m (£365m) fraud fine. Can the stock market save him?
Trump Media, which runs the social media platform Truth Social, is expected to become a publicly traded company, after a majority of shareholders in Digital World Acquisition Corp voted on Friday to take it over.
Trump is set to own a stake of at least 58% in the combined company, which would be worth about $3 billion at Digital World's current stock prices.
It's a potential windfall for Trump for a company whose auditor warned last year was at risk of failure.
Not to mention the numerous red flags associated with the deal, including unresolved lawsuits from former business partners. There is also an $18 million settlement that Digital World agreed to pay last year to resolve fraud charges related to how the merger plan was put together.
Shares of Digital World fell more than 13% on Friday after the approval, ending the day at $36.94.
Digital's backers — the vast majority of whom are individual investors rather than Wall Street firms, and many of whom are apparently Trump loyalists — seem unfazed.
“This is just the beginning,” Chad Nedohin, a supporter of the deal, said on his DWAC Live show on the video platform Rumble after the approval was announced. “There is no reason to panic.”
Digital World, or DWAC (pronounced D-whack), is what's known as a SPAC, or a shell company created specifically to buy another company and take it public.
The company will now be renamed Trump Media & Technology Group and could begin trading on the Nasdaq under the symbol DJT as soon as next week.
The deal is unlikely to immediately resolve Trump's more pressing financial issues, such as the fraud penalty in New York.
The former president is banned from selling or transferring his shares for at least six months – although the new company could grant him an exemption.
Trump could also try to get a loan, backed by the value of the stocks. But in this case, analysts said the bank would probably lend him much less than the shares are worth on paper, given the potential risks of the business.
But that hasn't stopped some of his supporters from hoping their support will help them.
Nedohin, who describes himself on his website as a Canadian “cult leader” and is nicknamed Captain DWAC on Truth Social, declined to be interviewed.
But he urged investors on his show this week to approve the deal, anticipating it could help the former president in his legal battles.
“If the merger is completed on Friday at 10 a.m. and Trump suddenly has… stock in DJT worth three, four, five billion dollars, who knows? He could easily leverage that to get a loan,” he said.
He added: “This means putting your money elsewhere for freedom of expression, to save your country, and potentially losing it all.”
The risk that Digital World shareholders will lose money on their investments is high, according to analysts.
Share prices have fallen from the highs they reached after announcing plans to buy Trump Media in 2021.
But even after Friday's drop, they still put Trump Media's value at about $5 billion, a significant amount considering it generated just $3.3 million in revenue in the first nine months of last year and lost nearly $50. Million dollars.
The merger will provide an influx of more than $200 million in cash for Trump Media, which can be used for growth and expansion.
But for now, Truth Social, which launched to the general public in 2022 and which bills itself as an alternative to major social media platforms like Twitter and Facebook, is still small.
It claims to have about 8.9 million subscriptions and in regulatory filings, Trump Media warns potential investors that it does not track metrics like user growth or engagement that could give them insight into its operations. She says she has no intention of doing so.
Outside companies estimate that Truth Social received about five million visits in February. By comparison, Elon Musk's website
Analysts said Digital World was a prime example of a “meme stock,” where the stock price is disconnected from the company’s fundamentals — and is poised to eventually fall.
“With Trump Media, I expect it will collapse, but whether it will happen a week from now or two years from now and how quickly… those things are really hard to predict,” said Jay Ritter, a finance professor at the University of Florida. Which keeps track of public listings.
Individual investors piled into digital stocks after Trump's deal was announced, and again in January, after he won the Iowa primary, said Marco Iachini, senior vice president of research at Vanda Securities.
Before the vote this week, he said activity had been lower, a sign that professional firms may be driving trading.
Whatever motivates buyers, Trump, whose main contributions to Trump Media have been his name and posts on the platform, appears poised to be the biggest beneficiary.
“It's a massive transfer of value from [investors]…to Trump, which would be very profitable for him,” says Michael Olrogg, a law professor at New York University who has studied the listings of companies like Trump Media.