Truth Social SPAC could pay Trump’s astronomical legal bills if board agrees

Donald Trump’s troubled SPAC deal has finally been completed, just in time to pay off the nearly $500 million owed from several legal actions if the board agrees to let him sell.

Let’s expose all abbreviations. Digital World Acquisition Corporation (DWAC) is a special purpose acquisition company (SPAC) that has been in merger talks with Trump Media Technology Group (TMTG) for several years and is listed on Nasdaq under the ticker $DJT. But it has encountered obstacles in the form of shareholder silence, scrutiny from the Securities and Exchange Commission (SEC) and even a grand jury subpoena.

Not to mention the questionable success of Truth Social, the partisan social network that quickly rose to prominence after the former president was ousted from Twitter. According to reports, TMTG will have a net loss of about $49 million in 2023 on revenue of less than $4 million — not exactly a hot number.

Various troubles caused the DWAC-TMTG merger to be repeatedly shelved, and it seemed that shareholders would eventually walk away when the timeframe extended beyond the terms of the SPAC.

But today, the two companies filed documents with the Securities and Exchange Commission necessary to complete the merger. DWAC stock has risen to more than $42 a share in anticipation of the event, and Trump, the largest shareholder with $79 million in stock, will soon find himself with a $3 billion stake in the new company.

For Trump personally, the timing was undoubtedly fortuitous. He must soon post hundreds of millions of dollars in bonds or his assets will be seized in a major New York fraud case, not to mention other damages, loans and ongoing cases that could add to his debt. If he can sell it, a $3 billion windfall would be very welcome to him.

There’s just one problem: the merger’s “lock-up” condition, under which the board must approve any stock sales by company executives and major investors within the next six months.

There is no doubt that many shareholders of the newly listed TMTG will sell their shares as soon as possible. But if Trump wants to finance his current liabilities, he would have to sell about 12 million shares at current prices — about 15% of his total stake. Will the board approve this?

They’ll be sailing between Scylla and Charybdis: On the one hand, Trump’s zero-day sell-off could depress prices and trigger more losses as people sell off stocks before they fall below their purchase value. On the other hand, if Trump does not accept the bailout, he may go bankrupt, endangering the business in another direction.

Trump may use his own stocks as collateral for the loan, but only if the shares are sold within six months, not today. But that may depend on someone being willing to speculate on what the shares will be worth six months from now – not an easy bet. If the company’s stock price falls below $8, which is not uncommon among SPACs, Trump’s entire stake may not be worth as much as his New York holdings.

We don’t know when $DJT will start trading, but assuming all paperwork is completed, it should start soon. We will be keeping a close eye on this unusual and significant transaction.