It looks like Trump will soon acquire an additional 36 million shares in Truth Social.
On paper, former president Donald Trump seemed to be about to score a huge financial jackpot.
Assuming that the share price of Trump Media & Technology Group doesn’t plummet dramatically before Tuesday’s closing bell, Trump is expected to acquire an additional 36 million shares in Truth Social.
It looks like we’ll reach this milestone after Tuesday’s market close.
Even though Truth Social is minuscule and Trump Media is losing money, the additional shares that Trump is expected to acquire would be worth roughly $1.3 billion at today’s pricing.
Since his social networking company sealed its contract to go public late last month, Trump’s net worth has fluctuated greatly. The company that has been dubbed a “meme stock on steroids” has the former president as its largest stakeholder.
Despite having dropped by half since its peak on March 27, Trump Media’s share price is still comfortably above levels that would activate the merger agreement’s performance clauses.
The former president and other pre-merger stockholders may receive more shares from Trump Media, according to SEC filings, if the dollar volume-weighted average price reaches or surpasses $12.50 for 20 trading days during a 30-day trading period starting on March 25.
If that price metric is equal to or greater than $17.50 throughout the same period of time, the entire 40 million shares would be earned.
The 20th trading day is coming up on Tuesday, and since the clock began on March 25, the price of Trump Media’s shares has never fallen below $17.50.
Given how high the share price has been, I think there’s a good chance the earnout conditions will be met at this point, according to Michael Ohlrogge, an associate professor at the NYU School of Law.
Trump’s substantial ownership
According to the merger deal, Trump will get 36 million more shares, or 90% of those earnout shares.
According to records, that would give Trump an even more commanding holding of 114.75 million shares, or 65% of all outstanding shares.
The value of this shareholding can fluctuate greatly because of the significant volatility of Trump Media’s share price.
Legal and practical limitations would probably keep Trump from profiting from this stock very soon.
Files indicate that the earnout shares Trump looks to be eligible for are subject to lock-up requirements, which prohibit insiders from borrowing against or selling their stock for months following the merger’s closing.
Experts claim that even if Trump managed to circumvent this lock-up agreement, it would be nearly impossible for him to sell a substantial portion of his holding without precipitating a sharp decline in the stock price. Trump is, after all, Truth Social’s biggest shareholder, chairman, and most well-liked user.
“Absolutely overpriced”
Experts caution that despite Trump Media’s share price retreating after surging to $66 last month, it is still expensive based on fundamental indicators.
Comparing a stock’s price to its revenue is a popular method of valuing stocks.
Matthew Kennedy, a senior IPO strategist at Renaissance Capital, estimates that the price-to-sales ratio of the typical social media stock is approximately 10x. Among such peer groups are Rumble, Pinterest, Snap, Reddit, and Facebook owner Meta.
Kennedy claims that, in contrast, Trump Media is trading at about 1,200 times sales.
University of Florida finance professor Jay Ritter stated, “The stock looks to be grossly overvalued.”
Ritter, who has spent 40 years researching initial public offerings (IPOs), believes that the price of a share of Trump Media will eventually drop to just $1 or $2.
Trump Media offers advice on preventing short-selling.
The share price of Trump Media is “responding primarily to non-rational factors,” according to NYU professor Ohlrogge.
Ohlrogge, for example, cited the stock’s sharp decline last week following the company’s announcement that it intended to register new shares.
“That filing shouldn’t have surprised anyone because it was only carrying out the business’s stated post-publication actions. He said that the price is determined by the “whims and sentiments of very uninformed traders, driving the price this way and that,” and that there was no actual rational reason for it to be negatively impacted.
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