Trump Is in Line for $3.5 Billion Windfall

[applegrove]

Trump Is in Line for $3.5 Billion Windfall

March 21, 2024 at 6:27 am EDT By Taegan Goddard 1 Comment

https://politicalwire.com/2024/03/21/trump-is-in-line-for-3-5-billion-windfall/

"SNIP............

“Donald Trump’s supporters are pushing to hand him a nearly $3.5 billion windfall by driving up the value of his also-ran social-media platform, which is on the cusp of getting approval to list on the stock market,” the Wall Street Journal reports.

“Trump’s winning lottery ticket would come from Truth Social, the social-media platform he launched in 2021. After a twisted path that included tens of millions of dollars in losses and insider-trading convictions, the shell company taking Truth Social public became the market’s latest meme stock. Trump’s supporters banded together to push up the stock, valuing Truth Social to a staggering $6 billion.”

“Truth Social could go public as soon as next week, but the deal still needs to be approved by shareholders. Even if that happens, Trump must hold his shares for six months.”

........SNIP"

[C_U_L8R]

1. Yet another Trump pump and dump

This will end in maga tears, again.

[applegrove]

2. It is still not enough.

[Girard442]

3. Are we assuming Vlad and Bonesaw will buy a mess of shares?

[Emile]

4. Something tells me people are going to lose

a lot of money.

[Irish_Dem]

5. None of the banks seem to be willing to use this as collateral for a bond.

So perhaps you are correct!

[ProfessorGAC]

7. My Take As Well

These people are experts at evaluating risk & at making a profit on monies lent.
Yet, they don't consider this valid capital to support loans worth 10% of this "windfall".
They likely know details we do not.

[Kid Berwyn]

6. Call Eloon Musca for an appraisal.

Guy made Twitter go from $44 Billion to $22 overnight.

Imagine what he could do to a web site with less traffic than a GOP dating service.

[Gore1FL]

8. He can't touch it for months and it will likely devalue.

Truth Social is not a cash cow.

[dawg]

9. Gonna be some bagholders there for sure.

But some folks can only learn the hard way.

[LetMyPeopleVote]

10. 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

[LetMyPeopleVote]

11. 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.