(Bloomberg) — A rocky start for Trump Media and Technology Group stock has wiped out $4.5 billion in market value in just a few weeks. But they would have to lose much more than that to risk huge special bonuses on the ex-president and his corporate insiders.
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As part of the start-up's blank check deal, Trump Media insiders (Donald Trump himself is by far the largest holder) have acquired the most recent stock trade, according to regulatory filings. The company has indicated that it plans to split another 40 million shares if the decline in its stock price is likely to stall. So-called earn-outs are a standard part of deals involving special acquisition companies (SPACs) and are designed to reward original investors, but they also reduce the value of their shares through the issuance of millions of shares. It may also punish public shareholders by diluting the stock. Additional stocks.
In Trump Media's case, the stock would need to trade above $17.50 on 20 out of 30 days (Friday was the 13th trading day) over the next three years. Those conditions could be met as early as April 23, even though the company's Friday closing price was $32.59, a 59% drop from its March 26 high of $79.38. In fact, it would need to fall another 46% to reach the current $1.3. Payment of 1 billion yen note to former president and his co-founder is questionable.
That said, Trump Media is not a regular company or stock, so little is certain about its actions in the market.
Representatives for Trump Media did not respond to requests for comment.
spiral of value
“It's especially difficult to make reliable predictions because so much of this company's stock price movement is driven by irrational factors,” said Michael Ohlrogge, a New York University law professor who studies SPACs.
Of course, the value of the additional windfall has skyrocketed as the stock price has plummeted. That gain lost about $1.3 billion in value from its debut peak to Friday's close, and Trump's current stock has lost billions of dollars on paper in a matter of weeks.
Even if the stock price continues to fall and falls below $17.50, insiders will still have some protection because once the stock price reaches a certain level, the dividend will be reduced but not eliminated. That means as long as Trump Media's stock price remains above $15, the group will split 30 million shares. And if the stock price falls towards his $12.50, the dividend will drop to his 15 million shares.
But the reality is that trying to figure out the value of these stocks is an ever-changing challenge as stock prices fluctuate, and former presidents and other insiders often have problems before trying to sell some of their stock. Realistically, it doesn't make sense since we would have to wait until September. His six-month lockup period on the SPAC deal reduced his holdings. So while the millions of shares would give President Trump about $1 billion in additional equity, it would take time to turn that paper gain into real cash.
The company's board, which is made up of Trump Media insiders and members of the former president's administration, could open the door for him to expedite the lockup and begin leveraging the 78.75 million shares he currently owns. . But before that can happen, U.S. regulators need to complete several filings, and even if they do, selling the company's shares won't be as easy as cashing in a lottery ticket.
Liquidation risk
“It is extremely unlikely that he will be able to liquidate a significant portion of his holdings without significantly reducing the stock price,” said New York University's Ohlrogge. But he added that if President Trump were to sell the stock at “a fraction of the current market price, the overall transaction would still be a very good performer.”
Trump Media's actual value has been hotly debated, even though it only brought in $4.1 million in revenue last year. It was worth about $4.5 billion at Friday's close, but has lost almost half of its value in less than a month.
The stock has become an expensive way for speculators to treat the stock market as a casino, bringing back memories of 2021's meme stock mania.
Still, a big focus for investors is how quickly Trump can tap into his paper assets and how that will affect stock prices.
Trump is embroiled in a lawsuit with two of Trump Media's co-founders, who accuse him of trying to dilute their stake. A Delaware judge granted a request to amend the lawsuit to include claims that President Trump retaliated by locking up his company's stock for six months, causing “irreparable harm” to his finances. claimed to occur. Trump himself is subject to similar restrictions.
Meanwhile, Trump is scheduled to begin his first criminal trial in Manhattan on Monday, where he is charged with falsifying business records to hide hush money payments to porn stars before the 2016 election. This is one of four criminal charges President Trump faces as he seeks to return to the White House.
–With assistance from Erik Larson.
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