So today this happened:
Shareholders in Digital World Acquisition Corporation voted Friday to approve a merger with Donald Trump's social media company, a deal that could net the former president an eventual windfall of $3 billion or more.
I think there’s an important caveat here— it could net the former president an eventual windfall of $3 billion or more. But it could also net him less. Or nothing! Because as every responsible person working in stocks will tell you:
Past performance is no guarantee of future results.
In other words, just because a stock is priced one way today doesn’t mean it’ll be that way tomorrow. And the article explains how it got to the $3 billion claim.
Trump would have nearly 80 million shares in the merged company.
At current trading prices of DWAC, that would be worth around $3 billion or more, although it is not clear what the merged company's opening share price will be.
So basically, we’re saying that if nothing changes, Trump could sell all of his shares and get $3 billion in cash. Or more. This is probably wishful thinking.
(Before we go any further, I will say this- I am just some guy on the internet. I have limited economics training, mostly in real estate, but no formal education on the stock market. If I get over my skis on anything, please call me out in the comments).
There’s also a catch:
That potential windfall for Trump, while massive, could not be immediately realized, at least not under the deal's current terms. Trump will be barred from selling shares in the merged company for at least six months.
A relevant comparable
Truth Social won’t be the first social media Initial Public Offering, and it won’t be the first of its type. Truth Social was founded after dumbass Trump got kicked off of the much more popular Twitter. Truth Social is basically a clone of Twitter. Like Truth Social, Twitter is pretty influential, but it’s also not profitable. Twitter, wasn’t profitable in its first few years either. In fact, it wasn’t profitable for a full five years after its IPO. So I think this is a pretty solid comparison.
Twitter held its IPO to much fanfare all the way back in November 2013 (it has since been taken private). It opened at just over $44.
Remember how Trump can’t sell his stocks until six months later? It might be useful to look at what Twitter stocks were selling for six months after its IPO as some of the excitement went down. So how did Twitter look six months in? Stocks were selling for just over $30 a share. Bummer!
I’m going to do some very half-assed math here and and say, that’s about a billion dollars less! But we’re still making assumptions. We really don’t know what the price will be six months from now.
What about the board?
It is possible that the board of directors could vote to allow Trump to sell shares earlier than that. And that board could be stocked with people close to Trump, including his son Donald Trump Jr., former wrestling company executive Linda McMahon, and Trump's former trade representative Robert Lighthizer, according to a list of planned nominees.
So the proposed board is probably going to be a bunch of Trump cronies, and they could conceivably decide to let him sell shares earlier than that. Politico gets to some of the problems with that scenario:
Trump could try to obtain a waiver from that rule, but even then he wouldn’t be able to sell more than a small fraction of his stake at any given time — up to 1 percent of the outstanding shares every quarter. And if he eventually does unload a large quantity of stock, the ramifications could be significant, according to investors and others watching the deal. That’s because Trump himself is the heart of the venture, they say, and any sign that his interest is waning could chill investors.
Going back to me being a layperson, I don’t know why he’d only be able to sell 1 percent per quarter, so take that with a grain of salt. But the final sentence in that paragraph gets to the main problem with his alleged windfall. It continues:
“It’s simply trading on Trump’s name,” said Kristi Marvin, founder of SPACInsider, a research firm. “People aren’t buying this because they like the fundamentals — they’re buying this because they like Trump.”
Trump has a captive audience of MAGA investors, and possible people who would be happy profiting from MAGA ignorance, and basically no one else. It’s generally considered a bad thing if a CEO starts unloading large amounts of stock. That suggests that the CEO doesn’t have confidence in the company OR the CEO has made some bad decisions in their personal life that might bleed into their business life. Neither is a good look. And if the CEO starts unloading large amounts of stock right after an IPO, well that looks an awful lot like a pump-n-dump scam. Would Trumpers be happy being scammed to the tune of $3 billion? I dunno, but I suspect that’s money they don’t even have.
There could be some sort of meme stock effect like when Game Stop shares were going for $300. But I doubt it. This is probably another example of people giving Trump some unearned positive publicity.