Donald Trump’s fortune is about to get a $5.8b boost. But is it real?

Lost amid the focus on the massive penalties imposed in Donald Trump’s New York accounting fraud case was the news that finally, nearly two and a half years after it was first announced, the US Securities and Exchange Commission has cleared the way for the merger of his social media business with a cash box.

Delayed by an SEC investigation of allegations that the cash box, Digital World Acquisition Corp (DWAC), had breached rules that prohibit special purpose acquisition companies from having specific purchases in mind when they raise funds (which cost DWAC a $US18 million ($27.5 million) fine) and allegations of insider trading in DWAC shares (that saw three people, including a former DWAC board member, charged) the merger was finally approved late last week.

There is no Trump Media without Trump, as its share price performance this year demonstrates.
There is no Trump Media without Trump, as its share price performance this year demonstrates.Credit: AP

Assuming DWAC shareholders now approve the deal, Trump Media would be backed into DWAC and gain access to the $US290 million or so of the $US300 million it raised in 2021, with Trump emerging with a shareholding of up to 70 per cent in the merged entity.

It could have been a lot more. DWAC and Trump had lined up another $US1 billion of institutional investment for the deal but, after investors representing more than half that amount withdrew their commitments, DWAC terminated that tranche of potential funding.

On paper, at least, assuming the merger is completed, it’s still a very attractive one for Trump, who would sell a very small loss-making social media platform into the deal and emerge with a stake “worth,” at the current price for DWAC shares, about $US3.8 billion ($5.8 billion).

That would be more than enough to cover the $US364 million of fines in the New York fraud case (plus the estimated $US100 million-and-ticking interest costs on that fine), the $US83.3 million awarded to E.Jean Carroll in her latest defamation case and the $US5 million awarded in the earlier case over her allegation of sexual assault.

That would be the case if Trump could access that value.

Under the Trump Media agreement with DWAC, however, he isn’t able to sell any of the shares he receives for six months and, in any event, given that whatever value Trump Media has is directly related to Trump’s own involvement, any attempt to sell his shares would see the value of Trump Media implode.

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There is no Trump Media without Trump, as its share price performance this year demonstrates.

After peaking at an extraordinary $US175 a share when the deal was first announced in late 2021, DWAC’s shares generally traded around $US15 to $US16 for most of last year. Then, suddenly, in mid-January they exploded above $US50 a share, valuing the company at more than $US1.8 billion.

That massive spike in DWAC’s share price coincided with the Iowa caucus, which Trump dominated, and the exit of Florida governor Ron DeSantis from the Republican presidential nomination process. It then fell back to just over $US41 a share before spiking again above $US50 on the news of the merger’s clearance.

Truth Social has been downloaded about 7 million times since its launch two years ago and Trump has about 6.54 million followers on the platform. 
Truth Social has been downloaded about 7 million times since its launch two years ago and Trump has about 6.54 million followers on the platform. Credit: Bloomberg

Given that DWAC’s contribution to the merger is its cash and Trump Media’s finances are thin – it had $US3.4 million of revenue, lost $US49 million in the first nine months of last year and has used up almost all the $US37 million of funding it has raised – it is difficult, if not impossible, to justify the DWAC valuation on the merged entity’s fundamentals.

Instead, DWAC’s share price history would suggest it is the memiest of all meme stocks, trading on sentiment and the emotions of Trump’s die-hard MAGA supporters. It’s the prospect of Trump regaining the presidency, not Trump Media’s prospects, driving the share price.

It’s also Trump who drives traffic and the modest amounts of advertising on Trump Media’s Truth Social platform.

Truth Social has been downloaded about 7 million times since its launch two years ago and Trump has about 6.54 million followers on the platform. That compares with the 87 million he once had on Twitter (now X) and the 35 million of his followers on Facebook.

The paucity and nature of his Truth Social audience – the hardcore MAGA wing of the Republican Party’s base – is going to create a dilemma for Trump as this year’s election campaigning heats up. If the contest with Biden (assuming it remains Biden) looks close, he may have to choose between the presidency or his paper net worth.

Truth Social has priority but not-exclusive access to Trump’s postings on social media, with Trump able, at his sole discretion, to post elsewhere if he decides the content is related to politics. To date, he has confined his comments to his own site.

Given the disparity in the platforms’ audiences, in a tight contest the temptation to post elsewhere — even if it diminishes traffic to, and the value of, his own platform – can only increase.

If the contest with Biden (assuming it remains Biden) looks close, he may have to choose between the presidency or his paper net worth.

If Trump were to lose the election (not to mention the plethora of court actions he still faces, with some of the charges carrying jail terms) the implications for the value of Trump Media post-merger are obvious. It would be significantly diminished, if not extinguished.

Truth Social’s unimpressive financial performance to date isn’t, of course, necessarily a true indicator of its potential.

It’s normal for tech start-ups to lose money in their formative years while building their user and revenue bases and, with access to DWAC’s cash and the ability to build out its offering from a relatively crude version of X, Trump Media might be able to gain traction, even if its modest revenue performance to date suggests that its task is daunting.

The ongoing performance of Facebook’s Threads – after a very successful launch – does, however, underscore how difficult it is for a social media business, even one with the resources of Facebook’s parent company Meta, and despite X’s travails, to challenge a well-established incumbent.

In Truth Social’s case, that challenge is made more daunting by its identification with Trump and his rusted-on followers. Democrats haven’t engaged with the platform and neither have most Republicans and the dominant presence of Trump’s MAGA acolytes makes it unlikely that they will.

Similarly, as Elon Musk discovered when he reinstated previously banned individuals (including Trump) on X and lost half his revenue, the nature of the platform and its audience deters mainstream advertisers.

DWAC’s share price might have climbed nearly 200 per cent so far this year as Trump’s political prospects have strengthened and the merger finally gained its clearance but the influences behind the surge in prices and the dizzy paper valuations of Trump Media they produce owe a lot more to politics than they do to the actual business and prospects of Trump Media.

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Source: Thanks smh.com