Trump is betting $3.4 billion on paper with the merger of his social networks this Friday USA election

Donald Trump is not stopping from sending messages to his followers these days, asking for help in raising the bail amount of more than $450 million in the civil fraud case for which he was convicted. The former President of the United States has assured that he cannot obtain guarantees and risks having his assets confiscated. However, in parallel, Trump is about to carry out an operation that, on paper, will make him about $3.4 billion richer. This Friday, at the shareholders’ meeting of Digital World Acquisition Corp. (DWAC), which voted on a merger with Trump Media & Technology Group (TMTG), the company that owns his social network, Truth Social, the price absolutely skyrocketed. Is, perhaps unstably.

Spac is a listed company whose sole purpose is to conduct mergers or acquisitions. As a company, it is a shell containing a bearer check with which another company can be bought and indirectly facilitate its IPO. DWAC agreed to buy Trump’s social media company. The operation, announced in 2021, was in doubt due to various regulatory hurdles and persistent delays. However, the United States Securities and Exchange Commission (SEC) approved the transaction prospectus last month and the Spac’s price soared.

DWAC shares have increased by 222% in the last 12 months and are trading at $42.81 per share. Considering that, if the merger is approved, Trump will own 78.75 million shares, the value of his stake on paper would be $3,371 million at the current market price. “On paper” is an important tagline in this operation, as the company’s market valuation defies logic and it is very difficult for them to materialize those profits. DWAC has become a meme stock, driven by impulse rather than the company’s economic fundamentals.

The transaction prospectus last month revealed that Trump’s social network company has minimal revenues and large losses. TMTG’s turnover between January and September 2023 was only $3.4 million, while its losses were $49 million.

It is also not guaranteed that the board will approve the merger as there is one wayward shareholder who controls approximately 15% of the capital, the remaining shareholders are dispersed and sufficient quorum is required. DWAC has filed a lawsuit against the shareholder, who is by far the company’s largest shareholder. The firm is Arch Global, which is controlled by Patrick Orlando, who was an early promoter of the company. In the lawsuit, Spac demands that it vote in favor of the deal.

If the operation is approved, it can be performed within a few days or weeks. Still, Trump has a clause that prevents him from selling during the first six months. If the market has not adjusted valuations by then, it will also be difficult to place the securities among investors without a fall.

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Trump’s name appears 469 times in the operation brochure. Digital World paid $875 million in shares for TMTG in the original deal, but the value of those shares has skyrocketed. Digital World has over $300 million in cash.

The document indicates that former President Trump will control at least 58.1% of the voting rights of the common shares of the merged company New Digital World, a figure that could be higher if some DWAC shareholders withdraw from the operation.

TMTG has used bridge financing primarily in the form of convertible notes to build Truth Social. It now wants to use the funds from the merger to boost its growth. The prospectus acknowledges that the Company has historically suffered operating losses and negative cash flows and is expected to continue to do so for the foreseeable future. He says, “TMTG’s ability to be profitable and generate positive cash flow depends on TMTG’s success in growing its user base, platform partners and advertisers.”

The company recognizes that to be viable it needs to attract Republican voters to its network and recognizes that if Trump loses popularity or new controversies arise that could damage its credibility or people’s use of the platform associated with him. If they harm the desire to do, then the results of the operation will make them angry with it. ,

Trump founded Truth Social after he was expelled from Twitter and Facebook for messages that those networks’ content moderators deemed inciting violence in connection with the January 6, 2021 attack on the Capitol.

The purchase of Twitter by Elon Musk has allowed Trump to return to the network. The billionaire has given free rein to misinformation on his network, to which many conservative hoax-spreaders have returned. This loses some of the appeal of Truth, whose main attraction is its exclusive inclusion of the former president’s messages on social networks. The truth never came within the grasp of the general public. The most successful profile Trump has has far fewer followers (6.7 million) than he gained on Twitter and still remains the same (87.5 million) despite not publishing new messages there.

The final pamphlet retains the warnings that appeared in previous drafts, particularly regarding the possibility of Trump going to jail. A section of risk warnings states, “The death, imprisonment or incapacitation of President Trump, or the interruption or limitation of his relationship with TMTG, could adversely affect TMTG’s business.” The company “depends heavily on the popularity and presence of President Trump,” who is its head and its main shareholder.

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