Trump to pay $2 billion for social media empire

Washington
CNN
—

One of the most powerful people on the planet has been banned from selling one of his most valuable assets.

Until now.

Restrictions preventing former President Donald Trump from selling shares in his social media company are set to expire as early as Thursday afternoon.

This will allow Trump – and other insiders at Trump Media & Technology Group – to sell shares in the controversial company that owns Truth Social if they wish.

It’s a significant moment for Trump Media, whose stock price has fallen dramatically since its IPO in March.

The former president is the face of the company and its dominant shareholder. The risk that Trump and other executives would rush for the exit has hung over the stock for weeks.

But Trump has said he has no plans to leave, telling reporters last week: “No, I’m not selling. No, I love it.” Those comments sent Trump Media’s stock price soaring, for a few hours at least.

It is a significant move for Trump, who has seen the value of his stake plummet to $1.8 billion. Just four months ago, it was worth $6.2 billion.

Even if Trump wanted to dump all or most of his shares, he would be limited by the reality of the situation: Someone who owns 57% of the stock can’t simply call up his broker and sell all — or even most — of the shares without sending the stock price plummeting.

“He’s smarter than that,” said Michael Stegemoller, a finance professor at Baylor University. “He obviously wouldn’t want to sell all of his shares on the market. That would be a massive offering of shares. That wouldn’t be good for the stock price — or for him.”

Trump’s media is inextricably linked to the former president.

Not only does Trump own a majority stake in the company, but his initials are the stock symbol (DJT) and he is the most popular user of the core product.

“This is a company whose value is entirely tied to one person. It’s quite strange. Even with Apple and Steve Jobs, we’ve never seen anything like this,” Stegemoller said.

This is why it is so crucial that Trump has signaled that he is not selling.

“People think I’m leaving. That’s why they’re against it, because it would be different if I left. But I’m not leaving,” Trump told reporters last week.

If Trump changes his mind and decides to sell even a few shares, he will be required to disclose the transaction publicly within two business days.

The Securities and Exchange Commission requires shareholders owning more than 10% of a company’s stock to file a Form 4 detailing stock sales.

Blocking restrictions like those Trump faces are typical of deals like the one that took Trump Media public last spring.

The idea is that it’s not a good idea for early insiders to rush to the exits immediately, so they promise not to sell or even borrow against their shares for about six months.

If Trump Media remains above $12 at the close, the blocking restrictions will be lifted as soon as trading closes on Thursday.

There is, however, some ambiguity in the documents as to the precise date on which the lock-up period ends, with some suggesting it could be a few days later.

Trump Media shares closed at an all-time low on Wednesday.

Regardless of how the stock price performs, the blocking restrictions are set to expire no later than September 25.

Trump’s sale is not the only risk.

Once the blocking restrictions are lifted, other insiders will also be able to dump their shares.

For example, two of Trump Media’s co-founders — Andy Litinsky and Wes Moss — could decide to step down. Litinsky and Moss, former contestants on Trump’s NBC show “The Apprentice,” have both filed lawsuits against the company over their actions.

Another question is whether Trump will decide to raise funds by pledging his shares in Trump Media as collateral for a loan.

Such a move would allow him to avoid having to sell his shares. But he would also have to find a bank, financial institution or other individual willing to lend him money – which might not be an easy task.

According to several legal experts interviewed by CNN, Mr. Trump should probably disclose that he pledged his shares as collateral for a loan. If he doesn’t, he could get into trouble with regulators.

Last month, the SEC fined legendary investor Carl Icahn for failing to disclose information related to his alleged decision to pledge vast amounts of stock in his holding company to secure billions of dollars in personal loans. Icahn settled the charges without admitting or denying the investigation’s findings.

“Compliance with this requirement has often been a little spotty, but the SEC just fined Carl Icahn a few weeks ago for failing to file a very similar disclosure,” said Xavier Kowalski, a former partner at Schulte Roth & Zabel who is now a professor in the finance department at the University of Florida. “I would expect the SEC to take a harder line on anyone who does the same thing.”