Trump in line for additional SPAC Payday despite $4.5 billion sell-off

By | April 15, 2024

(Bloomberg) — A rough start for shares of Trump Media & Technology Group Corp. has wiped out $4.5 billion in market value in just a few weeks. But it will have to lose a lot more to risk the huge special bonus the former president and his corporate insiders get.

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As part of the startup’s blank check deal, Trump Media insiders — Donald Trump himself is by far the largest holder — will distribute 40 million new shares if stock trading can slow their latest decline, regulatory filings show. The so-called earnouts, which can be a standard part of deals involving special purpose acquisition companies, or SPACs, are intended to reward the original investors, but they also punish common shareholders by diluting the value of their stakes through the issuance of millions of shares. additional shares.

In the case of Trump Media, the stock must trade above $17.50 for 20 days in a 30-day period for the next three years – Friday was the thirteenth session. With the company closing at $32.59 on Friday, these conditions could be met as early as April 23, despite the stock’s 59% decline from a high of $79.38 on March 26. In fact, shares would have to plummet another 46% to the current $1.3 dollar mark. billion paper payday for the former president and his co-founders to question.

That said, Trump Media is not a normal company or stock, so there are few certainties when it comes to its behavior in the marketplace.

A representative for Trump Media did not respond to requests for comment.

Value spirals

“This company’s stock price movements are driven so much by non-rational factors that it’s difficult to make particularly firm predictions,” said Michael Ohlrogge, a law professor at New York University who studies SPACs.

Of course, the value of the extra windfall has soared, while stocks have plummeted. The earnout has lost about $1.3 billion in value from a debut peak through Friday’s close, with Trump’s current bet losing billions on paper within weeks.

The insiders are somewhat protected even if the shares continue to fall and fall below $17.50 because the payout decreases but does not disappear once the shares reach a certain level. So as long as Trump Media trades above $15, the group will get 30 million shares to split. And if the shares fall toward $12.50, the payout drops to 15 million shares.

But the reality is that trying to figure out what these bets are worth is an ever-evolving exercise because of the stock’s fluctuations, and moot in practical terms because the former president and the other insiders have to wait until September before even trying to make a sell some of their shares. ownership due to the six-month lock-up period of the SPAC deal. So while the millions of shares would give Trump about $1 billion in additional stock, it will take some time to convert those paper profits into real cash.

The company’s board — made up of Trump Media insiders and members of the president’s former administration — could expedite that lockup and open the door for him to capitalize on his current 78.75 stake million shares. But before that would happen, U.S. regulators would have to complete some filings, and even if they did, selling shares in the company wouldn’t be as simple as cashing in a lottery ticket.

Liquidation risk

“It is extremely unlikely that he could liquidate a substantial portion of his holdings without causing the stock price to plummet,” said NYU’s Ohlrogge. However, he added that if Trump were to sell shares at a fraction of “their current market price, he would still do exceptionally well in the deal overall.”

Trump Media’s true value has been hotly debated, as it lost more than $55 million last year while bringing in just $4.1 million in revenue. It was worth about $4.5 billion at Friday’s close, having lost nearly half its value in less than a month.

The shares have become an expensive way for speculators to treat the stock market like a casino, bringing back memories of 2021’s meme stock mania.

Still, the big focus for investors is how quickly Trump can capitalize on his paper wealth and what that will do to stocks.

Trump is embroiled in a lawsuit with two Trump Media co-founders who claim he tried to dilute their stakes. A Delaware judge granted their request to amend the lawsuit to include allegations that Trump retaliated against them by locking up their shares for six months, which they said would cause “irreparable damage” to their finances . Trump himself is subject to the same restrictions.

Meanwhile, Trump will begin his first criminal trial Monday in Manhattan, where he is accused of falsifying corporate records to conceal a hush money payment to a porn star before the 2016 election. It is one of four criminal charges Trump faces as he campaigns to return to the White House.

–With help from Erik Larson.

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