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Could This Merger Give Trump the $500 Million He Needs?

This item is very inside baseball and very hard to understand, but it's also very important, so here we go. As you undoubtedly know, Donald Trump needs to raise something in excess of half a billion dollars very fast to post a bond so he can appeal his losses in both of the E. Jean Carroll defamation cases and the Letitia James case. Getting a bank to loan him the money might be tricky, especially since he has just been found guilty of defrauding banks.

Nevertheless, the bond fairy seems to have appeared out of nowhere to help. Trump's boutique Twitter clone is owned by the Trump Media & Technology Group (TMTG). The company's owners, mostly Trump himself, want to merge it with the Digital World Acquisition Corp. (DWAC). The latter is a special purpose acquisition company (SPAC). Its prospectus basically said: "Invest in our company and when we get enough money, we will buy or merge with something valuable. Just trust us." The DWAC stock is traded on the NASDAQ and closed Friday at $48.54.

Late last week, the SEC signed off on the merger. The stockholders of the two companies will vote on the merger this week. If you want to watch the shareholders meeting, here is the link. If it is approved, the companies will merge and Trump will own 69% of the new entity based on his 79 million shares of the merged company. His share will be worth about $3.8 billion, based on the closing price Friday.

We are not experts on SPACs, but our gut feeling is that a company whose only actual asset (other than a bank account) is Trump's boutique social media platform might not be worth $5½ billion. Remember, this is a publicly traded company and is expected to make a profit. The Truth Social app has been downloaded about 1 million times, but the company has never turned a profit and has not explained how it will suddenly make one. In fact, it has made a cumulative loss of about $31.5 million since it was started. It is possible that it will use some of the cash it has to actually buy a valuable company and run it profitably, but that is just speculation now.

However, we do know that owning stock is not like owning cash. To convert stock to cash, you have to sell it. If Trump were to start selling a serious amount of it, word would get out and Reddit would be full of comments about rodents, their travel plans, and ships. There could be a mass selloff and the price could drop. After all, if the only asset other than cash consists of Trump's posts and he is trying to get out, what's the future of the company? The lawsuits will grow like mushrooms after a good rain in the fall. Nevertheless, Trump might be able to dump a small quantity of stock fast enough to raise bond money before anyone caught on. Remember, all of the money in the company is OPM (Other People's Money). It's not Trump's.

In effect, the whole thing is essentially a scam Trump thought up. Getting people to invest in an opaque shell company and then merging it with Trump's company under terms that give Trump 69% of OPM sounds positively Trumpian. SPACs are legal, but the lawsuits would focus on false information in the prospectus and the foolish decision made by DWAC's management to merge with TMTG, mostly leaving the DWAC shareholders holding the bag. The suckers here are the people who invested in the SPAC. They might have been expecting DWAC to merge with something with a bit more growth potential. If you want to get into the weeds on the deal, use this link or this one. (V)

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