Donald Trump gets the green light to return to Wall Street

(CNN) — Months after leaving the White House, former President Donald Trump has begun planning his return to Wall Street. This comeback, delayed by years of regulatory and legal hurdles, is now on the verge of becoming reality — and it could make Trump lucky.

US regulators have finally given the green light to the controversial merger between Trump Media & Technology Group, the owner of Truth Social, and a blank check company. Approval from the Securities and Exchange Commission removes the last major hurdle stopping the deal.

The merger, if approved by shareholders, would pave the way for Trump Media to become a publicly traded company in which Trump would own a major stake, which could be worth billions.

Blank-check firm Digital World Acquisition Corp. announced the SEC has approved merger power for the deal on Wednesday. The date for the shareholder vote will be set for Friday.

“It looks like the deal will now reach its goal after more than two years of delays,” said Jay Ritter, a finance professor at the University of Florida.

Trump’s stake may be worth $4 billion

Shares of Digital World, a special purpose acquisition company, or SPAC, rose 15% on the key milestone. Shares have nearly tripled this year, boosted by Trump’s political success in the Republican presidential primaries and now the merger’s progress.

Ritter estimates that the merger could lead to a cash infusion of about $270 million into Trump Media, funds the company could use to fuel Truth Social’s growth.

Trump, who owns about 79 million shares, will hold a major position in the new combined company, according to the new SEC filing.

The former president’s stake would be worth US$4,000, based on Digital World’s current trading price of about US$50.

Of course, as Ritter points out, it will be very difficult for Trump to convert that paper wealth into actual cash.

Not only would Trump be subject to a blackout period that would bar him and other executives from selling for six months after the merger, but the fate of the new company would be closely tied to the former president. This could make it difficult for Trump to sell even after the lockup period ends.

Inflated valuation?

Apart from this, there are also a lot of doubts regarding the very high valuation being given to this media company.

“This is a meme action. “Valuation is completely separate from the fundamental value of the company,” Ritter said.

According to Ritter, Digital World’s share price values ​​the company at about $8 billion on a fully diluted basis, including all shares and options that can be converted into common stock.

He described that valuation as “insane” because Trump Media generates little revenue and burns cash.

New SEC filings indicate that Trump Media had revenues of only $1.1 million during the third quarter. The company recorded a loss of US$26 million.

Since the merger was first proposed in October 2021, legal, regulatory and financial questions have arisen about the transaction.

In November, accountants warned that Trump Media was spending money so fast that it might not be able to survive unless its long-delayed merger with Digital World was completed soon.

If the merger goes through, former President Donald Trump would own a stake that could be worth $4 billion at current prices. Win McNamee/Getty Images

Shareholders’ vote looms

Now, Trump officials are applauding the SEC’s green light.

“Truth Social was created to serve as a safe harbor for free expression and give people their voices back,” Trump Media CEO Devin Nunes, a former Republican congressman, said in a statement. “Moving forward, our goal is to accelerate our work to build a free speech highway outside of Big Tech’s entrenched dominance.”

Digital World CEO Eric Swider called the SEC approval a “significant milestone” and said executives are “extremely proud of the progress we have made in pursuing the merger.”

One of the final hurdles remaining is for Digital World shareholders to approve the merger in an upcoming vote.

Shareholders have a greater incentive to approve the deal because if the merger fails, the blank-check company will be forced into liquidation. This would leave shareholders with only $10 compared to the current market price of $50.

“Anyone who owns shares and votes against the merger is crazy,” Professor Ritter said.

“On the other hand, you could argue that everyone who owns DWAC stock is crazy,” he said, referring to the company’s poor revenues and high valuation.

Matthew Tuttle, CEO of Tuttle Capital Management, said he was not surprised by the volatility associated with the merger.

“The thing about Trump and everything Trump-related is that whether you love him or hate him, there will be drama,” said Tuttle, who buys options to buy shares of Digital World on his personal account. “I really couldn’t have expected anything less.”

Going forward, Tuttle said Trump Media’s stock price will depend on how everything plays out for Trump personally, from his legal troubles to his potential return to the White House.

“Anything for Trump will be bullish for stocks,” Tuttle said.

Trump is no stranger to Wall Street, where his history has been filled with bankruptcies.

Although Trump has never filed for personal bankruptcy, he has filed four business bankruptcies, all related to the casinos he owns in Atlantic City.