TFG's Truth Social Deal equals way out?

[TlalocW]

Of course, I don't want this to happen, but isn't he supposed to be getting $4 billion in some deal that's supposed to happen on the 22nd? Even if money from it couldn't be moved around fast enough for him personally to pay the half a billion to appeal, wouldn't a bail bond company look at that and say, "He'll be able to pay us back?"

[CrispyQ]

1. I don't know all the details, but no, he's not getting $4 billion this month.

He has shares of stock that if the company goes public he can sell, but only after a set amount of time, which I believe would be sometime in Oct. But if he just starts dumping shares the price goes down.

Don't quote me on any of this.

[Best_man23]

16. Usually when a new security begins trading public, there's a blackout period

The blackout period prevents the major shareholders in a company from selling their shares for a set period of time (usually 90-120 days). I know he doing this using a SPAC, but I'd be surprised if a SPAC public offering did not have the same restrictions.

[Nevilledog]

23. There are also shareholder lawsuits pending alleging share dilution.

https://www.politico.com/news/2024/03/01/legal-hurdles-swell-for-trumps-truth-social-deal-in-11th-hour-00144398#:~:text=In%20one%20case%2C%20filed%20in,percent%20stake%20in%20the%20business.

[NowsTheTime]

2. We'll 20 companies he applied to didn't see it....

[MiniMe]

3. Thought it was 30 companies?

[usonian]

4. Two things.

1. A liquidation sale is not a good sign. People know you're in deep doo doo.

2. He was in The Apprentice, not The Price is Right, for good, substantiated reasons.

It's like the proposed Donald Trump postage stamp.

A. Its face value is $1 but its worth 1¢
B. Your letter isn't delivered. It gets flushed.
C. You have to lick its backside.

[PJMcK]

5. Here's the deal

IF the Special Purchase Acquisition Company (SPAC) merges with Trump’s media company, Trump will own something like 90% of the stock which is projected to be worth $4 billion.

IF the deal closes, Trump would be barred from liquidating any shares for six months. This prevents him from diminishing the value of the public shares. Trump could get permission from the other stockholders to sell some of his shares but that would devalue their holdings. It’s illogical

Meanwhile, the two guys who dreamed up Trump’s media company are suing Trump because he’s trying to squeeze them out.

It’s another shit show and it won’t save his sorry ass.

[WarGamer]

7. Wouldn't need to liquidate the shares... he'd use a portion of his stake as collateral for the bond.

[PJMcK]

9. That's too speculative

After all, the 30 or so companies he tried to get to underwrite his $454 million bond would have known of the SPAC deal and they would have included it in their evaluation.

Let’s face it: Truth Social is a loser and the SPAC will flop spectacularly. You know why?

EVERYTHING TRUMP TOUCHES DIES!

[WarGamer]

12. that's why I called it a theory in the other thread

[CrispyQ]

17. On TV they just said most bond companies won't even take real estate & that's way less volatile than Truth Social stock.

Yeah, Truth Social's gonna flop. He's a loser all around.

[LetMyPeopleVote]

21. Vanity Fair has a good article on meme stocks and some of the problems in using this stock for a bond

I was amused to see that DWAC/Trump Media is classified as a meme stock where the value is due to personality and not due to the real value of issuer of the meme stock. This article is a good discussion of the meme nature of DWAC/TMT.
https://www.vanityfair.com/news/donald-trump-truth-social-media-merger

Trump’s financial future now hinges on some of the strangest fads in corporate finance—meme stocks, SPAC deals, and cult-of-personality investing. If Trump can find a way to act fast, it might just be the bailout he desperately needs.

Truth Social is a bad imitation of Twitter, where Trump was an unavoidable presence long before he ran for president. It’s chock full of stale red-pilled memes, MAGA conspiracy theories, and of course, Trump. That’s the main draw. Truth Social is the only place the former president now regularly posts his unfettered thoughts......

DWAC is best thought of as a meme stock. You may remember the meme stock fad from when retail investors on Reddit successfully coordinated a short squeeze with GameStop stock, before glomming onto a series of other millennial nostalgia brands like AMC Entertainment, BlackBerry, and Bed Bath & Beyond. Meme stocks are often publicly traded companies that attract an inordinate percentage of individual investors and their stock performance fluctuates in a way that’s significantly divorced from the reality of their underlying business. Combine those two trends and you’ll start to see why Trump’s media company could be valued at roughly $9 billion if it merges with DWAC.

Jay Ritter, a finance professor at the University of Florida, says meme stocks often depend on the “greater fool theory of investing,” meaning rational investors might buy in expecting the stock price to rise and betting that they can sell their shares to a greater fool willing to buy them at a higher price. In this case, however, Ritter speculates there is an inordinate number of individual retail investors compared to institutional investors, such as hedge funds, that normally own SPAC shares prior to a merger. “Here you’ve got ideology involved [too]—as far as I can tell, the vast majority of DWAC investors are Trump political investors, and they’re to some degree putting their money where their mouth is… My suspicion is most of them have bought the stock as a show of political support.” In this way, Trump is conducting yet another public fundraising from his supporters—this time through the public markets.

TFG is locked up and cannot sell or pledge this stock for six months following the merger. Even if TFG was able to pledge the stock the stock is so volatile that a bank would be crazy to take this stock as collateral.

The problem for Trump here is that when he tries to sell stock, it very well may tank the whole enterprise. (He’s technically restricted from selling stock for six months after the deal closes, but could get a waiver from the board of directors.) “The faster he sells and the more he sells the quicker the stock price will decline,” Ritter said. Another major problem would be if the deal to go public is stalled by a lawsuit—such as a recent one brought against Trump Media from embittered cofounders, who claim their share in the company was diluted by Trump and his allies.

Trump might be able to borrow money with his stock as collateral as a way to gain access to money more quickly, but he would have to either get an exemption from the post-merger company or just move ahead without one and hope that the board lets it slide, Ohlrogge said, since the terms of the agreement with DWAC don’t allow it. “If there were a bank that did take such a deal [allowing Trump to use his stock as collateral], it would raise serious concerns that the bank is doing it for reasons other than a belief it is a profitable lending opportunity,” he said. “Namely, it would raise concerns that the bank is doing it in order to win influence with someone who might become US president. If that bank were affiliated directly or indirectly with a foreign government, it would be even more concerning still.”

Any bank that made such risky loan would be subject to attack. Lawrence O'Donnell commented on Chubb's bond (which appears to be secured by cash) and after such criticism, Chubb backed out

Link to tweet

Link to tweet

This will be fun to watch

[WarGamer]

22. I know all about meme stocks...

I'm a full time daily options trader...

No need for the waste of pixels... 2 days til the merger and 5 days til the cash is due...

It'll happen or it won't.

We'll soon see.

[LetMyPeopleVote]

24. Meme stocks are amusing and are no part of the corporate world where I work

I deal in the real world with real companies who go public with real registration statements and underwriters. I was always amused by SPAC deals and I was not surprised to see that many of these deals went bust because there was no value to the stock. The son of a client looked at the Gamestop silliness and hopefully got out before that stock fell.

Bloomberg has an amusing article on DWAC including the fact that DWAC has had trouble turning out the vote for stockholder meetings due to the fact that there are no or few institutional stockholders who can be counted to show up at the stockholder meeting. I remember DWAC had to reschedule and extend a number of stockholder voters due to a lack of quorum in the votes to keep the company alive during SEC review. The article discusses the possibility of TFG using his stock for a loan.

Link to tweet

https://www.bloomberg.com/opinion/articles/2024-03-19/banks-can-get-emissions-off-the-books

The shareholder vote is this Friday; the bond is due on Monday. Pretty tight! There are problems. For one thing, the shareholders have to vote to approve the deal. They obviously should do that: DWAC’s stock closed yesterday at $35.575 per share in anticipation of the deal; if the deal fails, shareholders will get back roughly $10.87 per share. [8] They want the deal. But in the past, DWAC has failed to get shareholder approval for obviously good things because its heavily retail shareholder base doesn’t vote that much. I would be surprised if that happened on the merger vote, but it’s not impossible.

Then, the deal has to close right after the vote. At that point, Trump will personally have shares worth about $2.8 billion. [9]

Also, Trump’s shares are subject to a lockup agreement, so he’s not allowed to “lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell … or otherwise transfer or dispose of” his shares for six months, which presumably covers using them as collateral for a loan (or appeals bond). But the agreement is between Trump and DWAC, and DWAC could just waive it. It is not best practices or anything, as a capital markets matter, to waive the lockup an hour after the merger, but I think it is possible. Ordinarily you don’t do it because shareholders will be mad about additional shares flooding the market, but (1) if he just pledges his shares to a bank, they won’t flood the market, and (2) the shareholders are presumably Trump fans and will be happy to help him fund his legal bills. Probably the stock would go up if they gave him a limited waiver for this.

The other problem is, if you were a bank, would you lend money against those shares? Maybe? Bloomberg’s Bailey Lipschultz reported last month:

“He needs the money but he can’t sell too much at once without risking tanking the stock,” said Usha Rodrigues, a professor at the University of Georgia School of Law. “Once the lockup is expired, he could use the shares as collateral for loans in order to access cash without selling the shares.”

And it’s unlikely a bank would lend him a large sum of money against the locked-up shares, according to industry watchers like University of Florida finance professor Jay Ritter.

I guess I’m a little more optimistic than that, though I see his point. The shares are worth billions of dollars at present market value, but TMTG has never actually made money, [10] and a bank that lends money against a locked-up meme stock is making a risky bet that the shares will still be valuable in six months. A lot can happen in six months! Still, at current prices, that’s a lot of collateral. It’s not an insane bet. You’d want recourse.

I will be surprised to see a bank making a loan on this stock. If AG James forecloses on this stock, then TFG will no longer be a stockholder and there will be no value to this stock.

This will be fun to watch.

[Fiendish Thingy]

6. The merger deal is on hold, and he couldn't access the funds for something like 6 months anyway. Nt

[WarGamer]

8. no, merger vote is 3/22

and he can't SELL the stocks for 6 mos.

[Fiendish Thingy]

10. During the six month period, the stock can fluctuate in price

I’m guessing it will mostly go down.

Good luck using it as collateral.

[WarGamer]

11. for sure... which is why in the other thread I believe he'd have to use like $2B in stock as collateral.

I don't think the stock will dip too low before the election... remember, it becomes a proxy slush fund and The Saudi Sovereign Wealth Fund or any other foreign entity can buy in to keep the price up.

If/When Trump loses... it's a penny stock at best.

[LetMyPeopleVote]

14. The SEC filings for this merger are fun reading

I have been following this transaction for a long while and have read the SEC filings. I really love the risk factors on why this transaction has issues. SPACs in general never really made sense to me and there has been no new SPAC for a while. This SPAC had issues from day one and the SEC finally approved the transaction after fining the company $17 million and having some of the original management leave.

Here is a good post by a someone who read and had a good understanding of the SEC filings for this merger.

Link to tweet

A company that has less than $ 4 million in revenue is not worth billions. If AG James levies on this stock, it would not bring enough in a foreclosure to pay the judgment.

[WarGamer]

15. this is like the 6th time you've posted this...

[LetMyPeopleVote]

18. You really need to listen to this youtube video so that you will understand the SEC filings

Laypersons have trouble reading and understanding SEC filings and it is clear that TFG's new company is a very risky investment that no sane surety or insurance company would accept as collateral. SPACs are no longer being used for over the last year because these transactions are too risky.

[LetMyPeopleVote]

13. Trump-Linked Digital World Acquisition Hits 7-Week Low As Ex-President Struggles To Secure Bond In Civil Fraud Case

The market seems to be concerned about the lack of a bond

Link to tweet

https://www.benzinga.com/markets/equities/24/03/37810916/trumps-spac-for-truth-social-hits-7-week-low-as-ex-president-struggles-to-secure-bond-in-civil-f

On Monday, the stock of Trump-linked Digital World Acquisition Corp

What Happened: The shares of DWAC plummeted by as much as 8.74% to $35.58 on Monday, the lowest level since Jan. 30. This comes as Trump’s attempts to secure a bond to cover a $454 million judgment in a New York civil fraud case were rejected by 30 surety companies, bringing him closer to the potential seizure of his properties, Reuters reported.

Trump’s legal team proposed that he be allowed to post a $100 million bond while he appeals the judgment. Earlier this month, Trump posted a $91.6 million bond to cover a defamation verdict for E. Jean Carroll as he appeals a case stemming from her accusation of rape against him.

The market is correct to be concerned. This is low market cap stock that appears to be very overvalued given that there has been only losses and no real prospect of earnings in the foreseeable future. I would be surprised to see any major company take this stock as collateral.

The trouble with your prediction is that AG James has the ability to levy on and foreclose on TFG's stock at any time after March 25 unless a bond is posted. The fact that the stock cannot be sold by TFG will not prevent AG James from levying on and selling such stock in a foreclosure sale. I have done a number of private/public foreclosure sales of stock over the years and I am working on one such sale now. Under a series of SEC no action letters, AG James can hold a public foreclosure sale of TFG's stock in the merged entity and bid whatever price that she thinks this stock is worth. The result of such foreclosure sale will be that TFG would not have any ownership in the new merged entity which will have an effect on the value of the company in the minds of reasonable investors.

So far none of the 30 companies who rejected TFG's bond request have agree to take this stock as a collateral. I will be surprised to see any company taking the risk of taking a low cap/thinly traded stock with no earnings as collateral. This will be fun to watch.

[TlalocW]

19. Thanks, everyone

These were all good explanations that I had never considered.

[LetMyPeopleVote]

20. Digital World (DWAC): Is it safe to buy Trump SPAC stock?

This is a meme stock where the price is not based on anything financial results or reality.

Link to tweet

https://invezz.com/news/2024/03/20/digital-world-dwac-is-it-safe-to-buy-trump-spac-stock/

DWAC has made several headlines in the past few months. Three weeks ago, co-founders of the SPAC sued Trump Media, alleging a stock grab. This happened a few weeks after the SEC allowed the two companies to go through a merger. Another important report was that Trump had approached Elon Musk to buy Truth Social.

DWAC stock has done well this year as Donald Trump has become the Republican nominee for US president. The expectation is that the election hype will lead to more users to the platform since it is now his main mouthpiece.

Also, there are hopes that a Trump victory in the election will see more advertisers flocking to the platform. For example, it has been widely reported that many foreign governments and lobbyists frequented Trump’s Washington hotel during his term.

Fundamentally, however, Trump Media is a significantly weak social media company. First, the biggest risk is that it has struggled to add users, especially now that X (Twitter) has eased its content moderation policies. ....

Further, and most importantly, Truth Social will struggle to attract the biggest advertisers like Apple, Unilever, Colgate-Palmolive, and General Motors. Most of these firms have generally avoided advertising in right-wing platforms, including Fox.

This means that Truth Social will focus on smaller advertisers like My Pillow that have a limited marketing budget. Also, it will take a longer period for the company to break even.

Meanwhile, Trump is on the hook for millions of dollars. This week, he said that he could not post the bond to a recent New York filing. This means that Trump will be one of the top sellers of the stock when the lock-up period arrives.