Trump can earn US$3 billion, is that enough for his liquidity crisis?

(CNN) ,Investors approved a deal on Friday to spin Truth Social’s owner Trump Media into a publicly traded company.

Shareholders’ green light clears a major hurdle for a long-delayed merger that would generate billions of dollars in windfall for former President Donald Trump at a time when he faces immense financial and legal pressure.

A majority of Digital World Acquisition Corp. shareholders voted in favor of the merger deal with Trump Media, according to a preliminary vote announced during the meeting. The companies have indicated the merger could be completed as early as next week.

After years of legal and regulatory hurdles, shareholders voted to approve Trump Media’s merger with the blank-check company. Trump would own a major stake in a public company, with shares worth more than $3 billion at current market prices.

However, experts tell CNN there are a number of practical, financial and legal reasons why even if the deal is approved, it is unlikely to solve Trump’s looming liquidity crisis.

“President Trump will not be able to immediately monetize that stake,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.

Trump faces a deadline next Monday to post $464 million bail in the New York civil fraud case against him or have the New York Attorney General try to seize his golf course and personal property, or other assets in northern Manhattan. Can.

The good news for Trump is that there are strong incentives for shareholders to approve the merger with Digital World Acquisition Corp.

If it gets the green light from shareholders, Trump would be the major shareholder with at least a 58.1% stake, according to the filing.

The merger deal requires Trump to own about 79 million shares of the new public company, and potentially tens of millions more shares if certain targets are met.

At Digital World’s current share price of about $43, that huge stake would be worth $3.4 billion, at least on paper. Digital World shares are expected to rise further on Friday, rising 3% in premarket trading above $44.

The merger may close quickly.

Regulatory filings indicate the companies expect to close the merger on the second trading day after the shareholder vote is approved. According to Kennedy, this sets the stage for it to begin trading under the new name and ticker symbol on Tuesday or Wednesday, although it could take longer.

‘Clearly a bubble’

The bad news is that this bet is not as fluid as it seems. It will be very difficult for Trump to convert those paper gains into actual cash.

In fact, according to Charles Whitehead, a law professor at Cornell Law School, Trump’s shares in this company are in many ways even less liquid than his real estate assets.

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

This means Trump will have difficulty unloading shares or even pledging them as collateral.

“The stock price is clearly a bubble,” Yale law professor Jonathan Massey told CNN. “No rational investor will take stocks at face value, especially if they have to hold them for a long time.”

SEC filings show Trump Media had revenues of just $1.1 million during the third quarter. The company lost $26 million that quarter.

Truth Social’s shrinking user base

Not only this, Truth Social seems to be shrinking.

The number of monthly active users of Truth Social on iOS and Android in the United States is down 39% year over year, according to SimilarWeb data shared with CNN earlier this month. Truth Social is still much smaller than X (formerly Twitter), which is shrinking, but at a slower pace.

And yet, according to University of Florida finance professor Jay Ritter, Trump Media is worth more than $6 billion on a fully diluted basis, including all shares and options that can be converted into common stock.

Ritter said it is difficult, if not impossible, to justify the current market price.

“This is wildly exaggerated,” Ritter said. “This qualifies as a meme stock whose price is different from its fundamental value…Meme stock investors generally buy based on the most idiotic investment principle: It’s worth more today, but I can make money by selling it at the same price. Hope to make. Tomorrow a bigger fool and at an even bigger price.”

Shareholders cannot sell immediately

But even in the unlikely event that Trump finds a buyer for those shares, experts say he may not be allowed to sell or pledge those shares, at least not yet.

As is typical in such deals, some shareholders are subject to a lock-up period that prevents insiders from selling immediately.
“Nobody wants to buy a company where the biggest shareholder, and really the face of the biggest product, is selling,” Whitehead said.

In this case, Trump Media’s major shareholders, including its management team, agreed not to sell their common stock for six months in order to maintain “stability critical to the leadership and governance” of the company, according to the SEC filing. Are.

That lock-up agreement not only prevents these major shareholders from selling their shares for six months, but says that they are prohibited from using that stock during that period for “lending, offering, pledging…carrying out, donating, Have agreed not to do so.

If the stock price remains above $12 for some time, insiders may be able to sell or pledge their shares up to 150 days after the deal closes.

banks oppose

Additionally, the revised letter includes additional lockdown restrictions that experts say include Trump. That block also prohibits certain shareholders from selling immediately after the deal closes.

Whitehead said, “If his actions fall within the blocking provisions of the Charter, then absent an amendment to the Charter, President Trump cannot compromise these actions. Full stop.”

And amending the bylaws would be complicated, even for Trump and his enormous influence over the company. This is something that needs to be disclosed upfront as it will impact potential buyers of the stock.

“You can’t do this quietly. If President Trump intends to amend the letter today and he’s not disclosing that intention, that’s a problem,” Whitehead said. “Presumably, he would have to take office after the vote approving the merger and President Trump woke up and suddenly said, ‘Hey, let’s amend the letter.'”
Now, even if Trump overcomes these potentially insurmountable hurdles, there is no guarantee that any bank will take these shares as collateral on a loan.

“If I were a bank, I would be concerned about the idea of ​​a significant shareholder giving up his stake,” Whitehead said. “Any bank doing proper credit analysis needs to be sensitive to the fact that these stocks could decline if it turns out that President Trump is looking to sell positions.”