Trump Media’s SPAC Merger: Risky Deal or Lucrative Opportunity?

Trump Media, the company behind the social media platform Truth Social, is on the brink of going public, pending a vote by Digital World Acquisition Corp shareholders scheduled for Friday. In this potential deal, former President Trump would hold a significant stake of at least 58% in the merged entity, estimated to be worth over $3 billion based on Digital World’s current share prices.

Digital World, also known as DWAC, operates as a Special Purpose Acquisition Company (SPAC), a vehicle created specifically to acquire and take another firm public. Despite concerns flagged by auditors about the target company’s viability, unresolved lawsuits from previous business partnerships, and an $18 million settlement related to fraud charges, the majority of Digital World’s backers, many of whom are apparently Trump supporters, remain undeterred.

Some supporters view this investment as a commitment to free speech and national preservation, despite the risks involved. If the acquisition is approved, shares will be listed on the Nasdaq stock exchange under the ticker symbol DJT.

While this deal may not immediately address Trump’s ongoing financial challenges, such as legal issues in New York, he would be restricted from selling his shares for at least six months, unless an exemption is granted. While leveraging the shares for a loan is a possibility, analysts suggest banks may offer less than the shares’ paper value due to associated risks.

The financial risk for Digital World shareholders is significant, according to analysts, especially considering the discrepancy between the company’s share price and its actual financial performance. Despite trading at nearly $43 per share, the company’s revenue was only $3.3 million in the first nine months of the previous year, with substantial losses.

The influx of over $200 million in cash from the merger could aid Trump Media’s growth and expansion efforts. However, Truth Social, positioned as an alternative to major social media platforms like Twitter and Facebook, remains relatively small, with around 8.9 million sign-ups and limited engagement metrics tracked.

Analysts view Digital World as a classic example of a “meme stock,” where share prices are disconnected from underlying fundamentals and likely to decline over time. Despite fluctuations in trading activity, Trump stands to benefit significantly from the deal, primarily through his ownership stake in the company.

In essence, the potential merger between Trump Media and Digital World Acquisition Corp represents a substantial financial opportunity for Trump, despite the inherent risks involved for investors.