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Trump Media and Technology Group Corp. (NASDAQ: DJT), the company behind Donald Trump's Truth Social platform, has finally merged with the SPAC Digital World Acquisition Corp. (DWAC) and debuted on the Nasdaq exchange as a public company. Yet, the company's near-term bullish thesis is now under threat from successive waves of dilution, with the first such wave expected to strike as soon as today.
Before going further, do note that this merger has now unlocked around $293 million in proceeds that Digital World raised in its IPO. This liquidity influx is expected to alleviate the serious cash constraints that Trump Media and Technology Group and its Truth Social platform have been facing for quite a while now. After all, as of September 2023, Truth Social had just $1.8 million in cash against total liabilities of $60.5 million.
This brings us to the crux of the matter. Today, the combined company's share float is slated to increase to around 135 million shares. While the vast majority of these shares remain subject to a lock-up period of varying duration for now, two share categories currently remain sellable without any restrictions:
- Digital World's existing public common shares.
- Just around 8.37 million shares associated with Trump Media and Technology Group's convertible notes.
The shareholders in the latter category are currently deep in the profit. Consequently, these shareholders are quite likely to sell at least a portion of their shareholdings starting today and in the days and weeks ahead, thereby giving rise to material volatility.
Looking ahead, the warrants of the combined company are expected to exit their lock-up period in around 1 month's time, leading to an additional bout of volatility. However, Trump Media and Technology Group's insider shares are expected to remain under lock-up restrictions for at least the next 6 months.
The former US President now owns 78.75 million shares - currently worth over $3.5 billion - in the combined company, making him one of the biggest beneficiaries of the merger between Trump Media and Technology Group and the SPAC Digital World. Of course, Trump's shares remain subject to a six-month lock-up period.
