NEW YORK – Donald Trump’s social media company will receive tens of millions of special free shares in a new publicly traded entity if it performs well, handing the former president possibly billions of dollars in paper wealth on the basis of current stock prices, according to a filing with security regulators Tuesday.
The document states that Trump’s social media company which aims to challenge Twitter TWTR,
and FacebookFB,
will be able to exercise warrants convertible into 40 million shares of the new listed company over three years. The exact number will depend on the value of the company’s shares during that time, with the maximum number only granted if it trades at least $30 per share or higher for an extended period.
The free shares of his company would add up to nearly 90 million shares worth perhaps billions more.
“Trump and his co-shareholders could walk away with a really big payday,” said Jay Ritter, a University of Florida professor who specializes in IPOs, though he warned the stock could fall. “At some point the business has to turn a profit and given the competitive nature of the media industry, that might be overkill.”
Asset launches his new business, Trump Media & Technology Group last week as he unveiled plans for a new messaging app called “Truth Social” to compete with Twitter and other social media outlets that banned it following the insurgency from January 6 at the United States Capitol.
TMTG’s plan is to become a publicly traded company through a merger with publicly traded Digital World Acquisition Corp. DWACU,
a special purpose acquisition company, or SPAC, whose sole purpose is to acquire a private company and take it public.
Digital World’s stock plunged 30% on Tuesday to close at $59.07. It had traded above $100 last week when Trump’s social media company announced it would merge with it.
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Still, the closing price implies that Trump’s bonus shares, if granted in full, would be worth $2.4 billion, though that valuation is far from certain. Ritter warned that if Trump’s bonus shares were issued, they would dilute existing shareholders, weighing on the stock price.
The free shares are in addition to approximately 87 million shares that TMTG will also receive, based on Ritter’s calculations from the merger announcement last week. At current prices, that stake would be worth an additional $5.1 billion.
Tuesday’s sharp decline in Digital World shares reminds investors of the risks of investing in SPACs, companies whose stocks have a history of rising and falling.
Even with the new filing, investors are still largely in the dark about Trump’s new company. He gave few details on who exactly will run day-to-day operations and no financial figures.
IPO expert Ritter said the Trump company’s valuation is remarkable given that the company has so little disclosure and has virtually no assets.
“But he obviously has a big brand that is potentially worth billions of dollars,” he said.
Whatever Trump’s stake in the new company, he couldn’t sell his shares right away. A “lock-in” provision described in the filing indicates that he would not be allowed to sell until at least five months after the merger.
Trump is listed as chairman of the TMTG.
The document acknowledges the “controversial nature” of a company associated with Trump and his family.
And he says he is taking action in case Trump runs for president again. He said the new company structures Trump’s “ownership and position” in a way that eliminates the need for disruptive changes if Trump decides to run for public office or be convicted of a criminal crime.
