Coincidentally, and perhaps fatefully, the ticker symbol of the newly listed Truth Social company on NASDAQ is DJT, (Donald Trump’s initials), the same ticker symbol used by Trump Hotels and Casino Resorts, which filed for Chapter 11 bankruptcy protection from creditors in federal bankruptcy court in New Jersey in 2004.
Political and financial media are speculating that investor approval of a plan to take public Truth Social, Donald Trump’s social media company, will rescue him from the potentially catastrophic burdens of his multiple court cases. My view – don’t count on it.
On Friday, March 22, shareholders of Digital World Acquisition Corp. (DWAC) approved a deal to merge with Trump’s media business, Trump Media & Technology Group. The primary arm of Trump Media & Technology Group is the social networking site Truth Social. The stock, with a ticker symbol of DJT, will begin trading on the trading on Nasdaq next week.
With DJT expected to start trading with a valuation of about $5 billion, Trump’s 60% stake will be worth about $3 billion at the outset. An amazing potential windfall for Trump.
But here’s the rub.
DWAC is a shell company, what’s known as a “special purpose acquisition company” or SPAC, which will be replaced by Trump Media & Technology Group. And SPACs have had a notoriously checkered history in the market.
During 2020-2021, SPAC’s were “an unmitigated mess for investors,” according to Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset Management.
SPACs that went public in 2020 had the worst performance, with a median loss to investors of more than 80 percent, according to Institutional Investor. Of the 431 SPACs that were able to complete a merger during 2020-2021, 90 percent had negative net returns.
Companies brought public via SPACs also generated worse business results than their IPO counterparts, likely because they needed fast revenue growth to achieve sound profitability and didn’t get it.
The result? The De-SPAC Index, which measures the performance of companies taken public through a SPAC merger, fell 45% in 2021.
In 2022, most post-merger SPACs continued to perform poorly, with the De-SPAC Index falling almost 75%. The following year, 2023, was no more rewarding for SPAC investors, with at least 21 firms that went public by merging with special purpose acquisition companies going bankrupt.
Likely discouraging the SPAC trend further are regulatory changes approved ty the Securities and Exchange Commission (SEC) in January 2024.
All this means Donald Trump’s DJT will likely be an outlier in the market this year and the hype surrounding it may well burst in failure for investors, including Donald Trump. It’s best to remember, after all, that Trump Media & Technology Group booked just $3.3 million in revenue for the first nine months of 2023, according to a regulatory filing, and lost $49 million during that period. .
Worse, Truth Social had only 494,000 monthly active US users in February 2024, and its user total has actually been shrinking, plunging 51% year over year in February, according to Similarweb stats provided to CNN.
Then there’s the fact that Trump’ has been tied to other businesses that have gone bankrupt . “A number of companies that were associated with President Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt,” Trump Media said in its SEC filing.
Truth Social is also inextricably tied to Donald Trump himself, a 77-year-old man with an uncertain future.
The history of another hyped SPAC, EV company Lordstown Motors Corp., may be instructive.
Lordstown reverse merged with a SPAC, DiamondPeak Holdings, in October 2020 with an estimated equity value of $1.6 billion. The stock hit a peak of $31.40 a share on Sept. 21, 2020.
Things went downhill from there.
On June 27, 2023, Lordstown filed for Chapter 11 bankruptcy. In September 2023, Lordstown agreed to sell its assets to Delaware-based LAS Capital, whose majority equity holder was Lordstown founder and ex-CEO Steve Burns, for $10 million.
The SPAC merger agreement prohibits Trump Media’s shareholders from selling their shares for six months after the deal is done. DWAC shares closed at a high of $97.54 in March and closed at $36.94 on Friday, March 22, 2024. DJT will likely be erratic as well. And there are no sure things on Wall Street.
In other words, Donald Trump’s 60% stake in the new company could well be worth less than $3 billion six months from now…a lot less.
Maybe even zero.
An added complication, though, is that DJT’s board could grant Trump a waiver that would allow him to sell shares before the six months are up. The likelihood of a waiver being granted is enhanced by the fact that the board includes one of Trump’s sons, three former members of his administration and former GOP Rep. Devin Nunes.
Don’t count on them being too concerned about the impact of a maj0r sale on other investors.