trump merger Archives

But It Was A Great Way for Investors to Avoid Inflation

Trump Plaza Hotel and Casino demolition, February 2021, one month after January 6th insurrection.

Most Trump watchers of the early 21st century learned to avoid any publicly traded stock offering having Donald Trump at the helm, i.e., Trump Entertainment Resorts, Inc. Yes, was his Atlantic City casinos era, during which he managed to underperform the casino industry in a world famous manner. Rookie mistakes like saturating the casino market with multiple casinos to his own disadvantage, taking on massive. ultimately unpayable, debt, filing his company for bankruptcy a legendary four times. Of course, he – shameless – did well financially by having no real financial stake in his own company, yet, he siphoned off revenue from operations for himself in salaries, bonuses (for what?), licensing fees, and other sneaky deals. And, then, as now, he blamed others, lied outrageously, stiffed contractors, and all in all built the Donald Trump we know, the orange man-boy who would be king. (For a fine walk down casino lane see here.)

VOX’s Matthew Yglesias observed:

“Mom-and-pop investors who had the misfortune to put their confidence in Trump lost nearly everything. [see chart below] But as a performance of low cunning, his stewardship of THCR really did verge on genius. The company itself was a dumpster fire, losing money every year Trump served as chair. But he managed to personally pocket $44 million in salary and bonuses. Even more egregiously, he offloaded personal debts onto the corporate balance sheet and had the public company purchase services ranging from bottled water to plane flights from Trump’s privately held enterprises.”

Here’s an example from a regulatory filing, as you can see by comparing it to the stock price further below, the stock value was nearing single figures, down from its high of $240/share.

So, while the casino industry as a whole did well during the Trump era, Trump managed to quickly and forevermore collapse, basically due to both financial and management incompetence, and most of all chicanery, greed, and self-promotion at the highest levels.

Meet the New Trump, Same as the Old Trump

Those too young or too forgetful have yet to learn these lessons of the past as they lately dove into the shares of Trump’s second Wall Street adventure, Trump Media & Technology Group Corp. (DJT) (see my previous post to learn how they’ve fared thus far). Some DJT investors lost 37.8% in first two weeks of trading.

Also, since much of the outstanding shares of DJT owned by large shareholders (Trump owns 58%) are not eligible to be traded before October 1 (called a “180 day lock-up”), the stock available to trade is approximately 25% of total shares outstanding. Thus, with larger shareholders on the sideline, trading has been allowable primarily amongst small shareholders, i.e., by MAGA’s Trump cult investors who have little to no understanding of what they’ve gotten into, and with whom. They’re the ones with losses, by and large. And for reasons alluded to above, and other technical/contractual ones, the outlook for the future is not inspiring. More on that in my next DJT posting . . .

In a complicated financial deal, Donald Trump through Truth Social’s parent company, Trump Media & Technology Group (TMTG), has managed to merge with Digital World Acquisition Group (DWAC) which will invest large sums into the now merged entity called Trump Media (TM). The upshot of this is that as of tomorrow Trump Media will trade on NASDAQ as a publicly traded company that will trade under the ticker “DJT,” with Trump at the helm. This merger will raise the value of Truth Social from a consistent money pit to a post-merger valuation of more than $5 billion. The upshot of upshots is that Trump owns 58% of the stock (78.75 million shares). Based on Digital World’s current price of around $39 per share, the former president’s stake would be worth more than $3 billion.

Does Anyone Sense Disaster in the Offing?

The Financial Chemistry – Background. How did Trump pull this off? Had no one with Digital World Acquisition Group (DWAC) or those who approved the merger ever met him? Who would shovel money at a Trump company whose only real asset is a financial disaster, Truth Social? Why do people keep doing this? Well, they did, and since the results of the Iowa caucus, many MAGA investors piled cash into DWAC which, by the way, is itself a publicly traded company that has no business offerings but its willingness to merge with a financial Satan, and infuse a cash horde into his hands and control.

The way this merger occurred was through a special-purpose acquisition company, (SPAC) which have existed for decades but lately are the new big thing among financiers and investors (like, as you’ll see, MAGA cult members). SPACs (like DWAC) are shell companies that list their shares on an exchange with but one reason to justify their existence: buying a private company (like Trump Media & Technology Group) and taking it public.

An Investigation. Most of us learned that private companies go public via initial public offerings (IPOs), but SPACs are nowadays sucking up a portion of the highly regulated IPO business. Many SPAC investor dangers had been reported and in 2021 Massachusetts Senator Elizabeth Warren summarized them in her comments about her investigation:

“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered. This industry is rife with fraud, self-dealing, and inflated fees, and the SEC and Congress should continue to act to crack down on these abuses.”

And until January 2024 SPACs were not as closely watched by the Securities and Exchange Commission (SEC). Then, however, they adopted new rules that “more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs.” Despite this, one must think, Donald Trump viewed SPACs, prior to the new SEC rules, as a potential playground.

The Upshot of Upshots. I think it inevitable that the SPAC that created his soon to be publicly traded NASDAQ listed TJT will eventually – perhaps soon – show itself to be yet another typical DJT business, rife with fraud despite it being, as a publicly traded stock, subject to a panoply of financial regulations. As Senator Warren pointed out about SPACs in general, “Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered.” Now at the helm of TJT, valued at approximately $5 billion, Donald Trump with his need for cash has his eyes on a piggy bank and a hammer.

Pity the Poor MAGA

Investors bought and sold shares of the original SPAC like any other stock, speculating on what private company it might bring to market, or how the company it has promised to buy will perform. This deal was unusual because of its political implications. And this, in turn, has unsettling implications for MAGA investors, many of whom have little to invest, but do so as one would donate a few dollars when the church collection plate goes by. Most of them are unpracticed investors, undereducated, and gullible. And now they’re invested, not in a SPAC, but in Trump dominated NASDAQ stock, one with Truth Social as its (presently) only asset, and an asset with no appreciable earnings. They’ve invested in a dream that has a long road ahead of it to reach profitability. It’s price is presently based upon a dream only, and eventually should TJT show no earnings growth/profitability big investors will jump ship.

And right now Trump has control of a lot of their MAGA small investor money, well before TJT has any earnings. The one thing, though, TJT has is cash. Under the “official” terms of these mergers, though, investors may not loan or sell stock for six months (a lockup period), or in this case, until September 2024. However, – there’s always a however – if the board approves, those strictures may be waived. And Trump’s TJT seven person Board of Directors is rife with cronies, most specifically, Donald Trump, Jr.* With no understatement intended, this board is pliable and would likely approve Donald Trump stock sales which might raise immediate conflict of interest concerns by shareholders (although Trump himself has shares that entitle him to a 55% vote over any shareholder measures).

* The most egregious of these rubber stamps are three former members of the Trump administration: the execrable Kash Patel, Linda McMahon, and Robert Lighthizer.

Can you hear Trump’s heavy breathing . . .? I think there’s little doubt that he will raid his new publicly traded company for whatever reason he chooses. And if he does so – or, when – he’ll sell, and perhaps large tranches. That may will cause a significant loss of stock value. What would the results be for those poor MAGA shareholders? His loyal sheep. Well, a financial fleecing. Will that change a few MAGA minds . . . if past is prologue, no, it won’t. Trump has found the perfect flock; during February after winning the Nevada caucuses he said, “I love the poorly educated.” Pity the poor MAGA investor.