Achi news desk-
New York
CNN
–
Former President Donald Trump is on the verge of scoring a major financial bonanza – at least on paper.
As long as Trump Media & Technology Group’s share price doesn’t skyrocket before Tuesday’s closing bell, Trump is on track to receive another 36 million shares as the owner of Truth Social.
This milestone is on track to be hit after the market closes on Tuesday.
Although Trump Media is losing money and Truth Social is minimal, those new shares that Trump is likely to receive would be valued at around $1.3 billion at current prices.
Trump’s net worth has been on a rollercoaster ride ever since his social media company finalized its deal to go public late last month. The former president is the main shareholder in a stock that has been called a “meme stock on steroids.”
Although Trump Media’s share price has been cut in half since reaching a peak on March 27, it still trades comfortably above levels that would trigger certain performance provisions in the merger agreement.
According to SEC filings, Trump Media can issue additional shares to pre-merger shareholders like the former president if the dollar volume weighted average price equals or exceeds $12.50 for any 20 trading days within any 30-day trading period in starting on March 25.
The full gain of 40 million shares would be triggered if that price metric equals or exceeds $17.50 over the same timeframe.
Tuesday marks the 20thed Trump Media’s trading day and share price have not traded below the $17.50 level at any point since the clock started on March 25.
“It’s almost certain to me that the earnings conditions will be met at this point, given how high the share price has been,” said Michael Ohlrogge, an associate professor at NYU Law School.
The merger agreement calls for Trump to receive 90% of those earnings shares, translating to an additional 36 million shares.
That would give Trump an even more prominent stake of 114.75 million shares, or 65% of the total outstanding shares, according to filings.
Of course, Trump Media’s share price is subject to extreme volatility, meaning that the value of this share can swing wildly.
There are also practical and legal restrictions that would likely prevent Trump from trading this stock anytime soon.
According to filings, the earnings shares that Trump appears likely to receive are subject to the lock-up restrictions that prevent insiders from selling or borrowing against their stock for months after the merger closed
Even if Trump could get around this lock-up deal, experts say it would be practically difficult for him to sell a significant chunk of his stake without causing a crash in the share price. After all, Trump is the shareholder, chairman and most popular user on Truth Social.
Although Trump Media’s share price has retreated since peaking at $66 last month, experts warn it remains overvalued based on fundamental metrics.
One common way of valuing stocks is to compare its price relative to its revenue.
The average social media stock trades at a price-to-sales ratio of about 10x, according to Matthew Kennedy, senior IPO strategist at Renaissance Capital. That peer group includes Facebook owner Meta, Pinterest, Snap, Reddit and Rumble.
By comparison, Trump Media trades north of 1,200 times sales, according to Kennedy.
“The stock appears to be very overvalued,” said Jay Ritter, a finance professor at the University of Florida.
Ritter, who has been studying IPOs for four decades, expects Trump Media’s share price to eventually plummet to just $1 or $2 a share.
Ohlrogge, the NYU professor, said Trump Media’s share price was “primarily a response to non-rational factors.”
For example, Ohlrogge pointed to how the stock plunged last week after the company indicated it planned to register new shares.
“There shouldn’t be anything surprising about that filing as it does exactly what the company said it would do after it went public…There was no real logical reason to have a negative impact on the price,” he said, adding that the price reflects “the whims and feelings of very ignorant traders, who drive the price this way and that.”
In a sign that Trump Media is worried about its share price, the company took the unusual step last week of telling its shareholders how to avoid lending their stock to short sellers who are betting against it.
Trump Media updated the Frequently Asked Questions section of its website to include the tips to prevent short selling.
“That’s very unusual,” said Peter Byrne, a securities lawyer at Cooley who focuses on companies going public. “We don’t usually see companies publishing information like this.”
Ad blocking test (Why?)
Source link
Related
