- By Natalie Sherman
- Business Correspondent, New York
image source, Good pictures
Donald Trump appears to be struggling for funds to pay a $464m (£365m) fraud fine. Can the stock market save him?
Trump Media, which runs social media platform Truth Social, is poised to become a publicly listed company after a majority of Digital World Acquisition Corp.'s shareholders voted to buy it on Friday.
Mr Trump would have to own at least 58% of the combined company, which would be worth almost $3 billion at Digital World's current share price.
It's a surprising potential windfall for Mr Trump in exchange for a business whose own auditor warned last year it was at risk of failure.
Ignore the many red flags associated with the deal, including unresolved lawsuits from former business partners. There's also the $18 million settlement DigitalWorld agreed to pay last year to resolve allegations of fraud over how the merger plan came together.
Digital World shares fell more than 13% on Friday, ending the day at $36.94.
Backers of the digital world — most of whom are individual investors rather than Wall Street firms, many apparently Trump loyalists — aren't fazed.
“This is just the beginning,” Chad Nedohin, the deal sponsor, said on his DWAC Live show on the video platform Rumble after the approval was announced. “There's no reason to freak out.”
Digital World, or DWAC (pronounced D-whack), is also known as a SPAC, or shell business created expressly to buy another company and take it public.
The company will now be renamed Trump Media & Technology Group and may begin trading on the Nasdaq stock market as soon as next week under the ticker DJD.
The deal is unlikely to immediately resolve Mr Trump's most pressing financial issues, such as the New York fraud fines.
The former president is barred from selling or transferring his shares for at least six months – although the new company may grant him an exemption.
Mr Trump could try to get debt backed by equity value. But in this case, given the potential risks of the business, a bank would lend him significantly less than the stock on paper, analysts said.
That hasn't stopped some of his supporters from hoping their support will help.
Mr Nedohin, who describes himself on his website as a Canadian “cult leader”, declined to be interviewed by Captain DWC on Truth Social.
But on his show this week he urged investors to approve the deal, speculating it could help the former president's legal battles.
“If the merger closes at 10 a.m. on Friday and Trump suddenly has … who knows three, four, five $10 billion worth of shares in DJT? He could easily use that to get a loan,” he said.
He added: “It's putting your money where your mouth is and losing everything to save your country.”
The risk to Digital World shareholders of losing money on their investment is significant, according to analysts.
After the announcement of plans to buy Trump Media in 2021, stock prices have fallen from their highs.
But even after Friday's slide, they still value Trump Media at nearly $5 billion, bringing in just $3.3 million in revenue and losing nearly $50 million in the first nine months of last year.
The merger will provide Trump Media with more than $200m in cash flow, which it can use for growth and expansion.
But for now, Truth Social, which launched for the general public in 2022 and branded itself as an alternative to major social media platforms like Twitter and Facebook, remains small.
It has about 8.9 million signatures and Trump Media warns prospective investors in regulatory filings that it doesn't track metrics like user growth or engagement. And it says it has no intention of doing so.
Outside companies estimate that Truth Social received about five million visits in February. By comparison, Elon Musk's X, formerly Twitter, and recently valued at around $14bn by an investor, received more than 100 million visits.
Analysts said Digital World is a prime example of a “meme stock,” in which the stock price is divorced from a company's fundamentals — and eventually collapses.
“With the Trump media, I expect it to collapse, but whether it's going to happen in a week now or how quickly it's going to happen two years from now…those things are very hard to predict,” said Jay Ritter, a finance professor at the University of Florida. Keeper of Public Lists.
Individual investors piled into Digital World shares after the Trump deal was announced and again in January, after he won the Iowa primary, said Marco Iacchini, senior vice president of research at Wanda Securities.
Ahead of the vote this week, he said there was less activity, a sign that professional firms would drive the trade.
Whatever motivates buyers, Mr Trump, whose name and posts have been a major contributor to the Trump media, appears to be the best beneficiary.
“It's a tremendous value exchange [investors]For Trump, it would be very profitable for him,” says Michael Oelrock, a law professor at New York University who has studied the list of companies like Trump Media.
