why donald trump's new social media business is being valued at $10billion fordes in written form

The Trump Media and Technology Group hasn’t done much yet. Investors still seem to think it’s worth about four times as much as everything else Donald Trump owns.

Over the course of 75 years, Donald Trump amassed a pile of assets—skyscrapers, hotels, golf courses and so on—worth an estimated $2.5 billion, after subtracting debt. Then, in practically no time at all, he conjured up a new business, the Trump Media and Technology Group, which hasn’t done much yet but plans to launch a social media company and various other ventures. Investors are already suggesting it’s worth about $10 billion.

The people valuing Trump’s enterprise at this price are everyday stock pickers. They still can’t purchase shares in the Trump Media and Technology Group, but they can buy stock in a pile of cash—also known as a special purpose acquisition company, or SPAC—that plans to merge with Trump’s business. News of the merger sent shares in the SPAC soaring from about $10 to $60 apiece over the last four weeks.

If the stock remains at $60, the SPAC shareholders will be left with an estimated $2.2 billion interest in the combined company after the merger. Investors in 15 million warrants tied to the SPAC will be sitting on another $300 million. The current owners of Trump’s company—it’s not yet clear what the former president’s personal interest is in the business—will receive an estimated 86 million shares as part of the deal, worth $5.1 billion. And, assuming shares consistently stay above $30 over the course of about a month and a half after the merger, the owners of Trump’s group will receive an additional 40 million shares, worth $2.4 billion at today’s prices. In total, that all adds up to $10 billion.

Trusting Trump
Investors piled into the SPAC merging with Trump’s media and technology company as soon as the deal became public. Shares have leveled off since the early days—decreasing the implied valuation of the merged enterprise—but investors are still suggesting it’s worth about $10 billion.

It’s a lot of money riding on a barely formed business. In general, investors have a tendency to overvalue SPACs, which are structured in a way that dilutes everyday stock pickers. In an April paper, researchers at Stanford and New York University looked at 16 SPACs that merged in 2019 and 2020, then traded for at least 12 months after their mergers. On average, they lost 35% of their value during that time, even as the overall market grew. “This is just a SPAC on steroids,” says Michael Klausner, a coauthor of the study who serves as a business and law professor at Stanford. “You combine hype with hype, and you get hype squared.”

The reason this SPAC has gotten so much hype is because it’s tied to one of the greatest marketers in the history of American business, Donald Trump. Past presidents have cashed in on their fame by delivering speeches and writing books. But a speech or book can only hold someone’s attention for so long. Trump instead wants to create a product that will attract his followers for years to come—an effort that is more ambitious and, potentially, more lucrative than writing a bestseller or going on the lecture circuit.

Investors seem to be banking on Trump’s enormous following. Before he was booted from Facebook, Instagram and Twitter in the wake of the January 6 insurrection, Trump amassed nearly 150 million followers on the platforms, as the investor deck for his new company proudly points out. In a poll conducted last month, for Politico and Morning Consult, 37% of voters said they would engage with a Trump-backed platform “some” or “a lot.”

For a business with no working product and no real financial history, those figures count for something. Twitter, which says it can show ads to about 211 million users per day, currently has an enterprise value of $40 billion. In other words, investors value the social media giant at about $189 for every person it can show ads to on a daily basis. If one third of Trump’s 89 million Twitter followers become daily users of his new platform—and investors value his company like Twitter’s—then the Trump Media and Technology Group would theoretically be worth $5.6 billion.

If Trump attracts a higher percentage of his former followers, the numbers would, of course, get bigger. If, say, 50% turn into daily users, Trump’s business could defend an $8.4 billion valuation. An even larger figure doesn’t sound crazy to Mark Zgutowicz, a stock analyst that covers Twitter and the Fox Corp. for Rosenblatt Securities. “You could easily get to a $9 billion to $10 billion valuation,” he says.

At this point, though, the Trump Media and Technology Group still needs to build a working product. The company revealed plans for its Twitter knockoff, named Truth Social, last month. But almost immediately, pranksters reportedly infiltrated what appeared to be an early version of the site. One person uploaded a video of a defecating pig under the name “donaldjtrump.” Shortly thereafter, the site was taken offline.

Dan Alexander
I am a senior editor at Forbes, as well... Read More

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Dec 21, 2021,
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Trump’s SPAC Investors Do Not Know What They Are Buying

Dan Alexander
Forbes Staff
Billionaires
Senior editor at Forbes, covering Donald Trump's business.
Former President Donald Trump Host Save America Rally
Donald Trump speaks during a Save America rally at the Iowa State Fairgrounds in Des Moines on Oct. 9, 2021. (Photographer: Dan Brouillette/Bloomberg) © 2021 BLOOMBERG FINANCE LP
The Trump Media and Technology Group is set up to protect rich investors—while endangering the little guys.

Donald Trump’s new venture, which is aiming to launch a Twitter rival, made several big announcements this month. First, the business said it struck agreements to raise $1 billion of cash. Second, it admitted that it was under investigation by the Securities and Exchange Commission. Third, it revealed that Devin Nunes, a loyal Trump ally in the House of Representatives, would be leaving Congress to become its chief executive.

Investors reacted with some caution, but more enthusiasm. On Dec. 6, shares trickled down 3%, possibly in response to news of the SEC investigation, which Sen. Elizabeth Warren had suggested the commission consider. The next day, the stock jumped 17%, as Trump fans seemed to focus on the cash injection and new hire. “Go away Pocahontas!,” one tweeted, borrowing Trump’s nickname for the senator. “You have no power here!” Shares soared another 28% the day after that, before eventually falling to their current $51. Overall, since the announcement, they’re up 13%.

The retail investors pushing up the price do not know what they are buying. Sure, they understand that they are investing in a special purpose acquisition company, or a SPAC, rather than a traditional business. Traders still cannot purchase shares of Trump’s company, the Trump Media and Technology Group. Instead, they have to acquire stock in a SPAC—essentially just a pile of cash—with the understanding that it will merge with Trump’s group and therefore give them a stake in the combined entity. But they have no clue how many shares will exist in the company after the merger, which means they don’t know what percentage of the venture they are actually buying.

SPACs often come with tricks and surprises that can harm retail investors, but this particular SPAC features additional boobytraps. The current owners of the Trump Media and Technology Group will receive anywhere from 86 million to 126 million shares as part of the merger. In addition, the institutional investors who just agreed to pump $1 billion into the venture will get about 30 million to 100 million shares. Taken together, that means there are 110 million shares that may or may not be a part of the company. It’s a bad setup for the little guys. If the stock does well, the current owners of Trump’s business will receive more shares. If the stock does poorly, the big-money investors will get more. Regardless of which way it moves, mom-and-pop shareholders will end up diluted, leaving them with a smaller percentage of the combined business.

Nonetheless, they’re snapping up shares, with an enthusiasm that seems to be driven as much by political passion as it is by financial analysis. “This isn’t just a SPAC,” one investor declared on Twitter. “This is to take back our freedom of speech. If there’s ever a chance for a group to beat the shorts, it will be the Patriots that do it.”

But those self-proclaimed patriots may be setting themselves up to lose a fortune.

Early this month, as Trump fans were flocking to public exchanges to purchase a slice of the Trump SPAC for $45 a share, a separate group of investors was hammering out a backroom, billion-dollar deal that would let them buy in at a deep discount. The identities of those lucky investors remain a mystery, but we do know a few details. There are 36 of them, and they all qualify as either banks, savings and loan associations, insurance companies, registered investment firms, investment advisors or people with assets of at least $50 million. To simply things, we’ll refer to them as the whales.

At first blush, their entry seemed like good news for everyone. Social-media companies are expensive to run—Twitter budgeted $900 to $950 million in capital expenditures this year. Before the whales agreed to invest $1 billion into the new venture, Trump’s group was set to receive only $280 million or so from the SPAC merging with it. “Puff money,” as one stock analyst, Mark Zgutowicz of Rosenblatt Securities, called it. The new cash should give Trump’s group a better chance to create a credible competitor.

Retail investors cheered the news, boosting shares of the SPAC—and therefore the implied value of the whole venture. Before the announcement, the SPAC stakeholders were sitting on an estimated $1.9 billion of equity. Now, that’s up to $2.1 billion, a $240 million increase. Upon completion of the merger, the owners of the Trump Media and Technology Group are set to receive an estimated 86 million shares, which once looked like they would be worth $3.9 billion but now appear to be up to $4.3 billion. Assuming the stock price stays at $51, that same group will receive 40 million shares on top of that, now equivalent to $2 billion. In addition, the whales who just bought in are positioned to receive $1.7 billion of stock.

Add up everything—the SPAC shares, the warrants, the amount Trump’s group will get, plus the shares for the new investors—and the whole venture is now worth an estimated $10.2 billion, if you go by the current trading price. That’s up from $7.5 billion earlier this month, before the backroom deal became public. Turning a $1 billion investment into $2.6 billion of shareholder value is a neat trick. The problem, however, is it may not be a sustainable one.

When things go well in the corporate world, insiders often benefit the most. Employees earn bonuses, CEOs receive stock awards and investors get carried interest. Depending on the size of such benefits, they can raise eyebrows. For example, people might take issue, in this case, with the multi-billion-dollar payout that appears to be coming to the owners of Trump’s group. Regardless, it still makes sense, theoretically, that those intimately involved with growing a company get an outsized reward if things go well.

What makes no sense, however, is when someone gets compensated for things going poorly. Unfortunately for the retail investors in Trump’s SPAC, that’s the kind of arrangement the whales were able to negotiate. Not only did they receive a discount on the shares, but they also secured an agreement that protects them—while harming everyone else—if the stock price falls.

Here’s how it works. Initially, the whales will receive the equivalent of 29.8 million shares. But if the value of the stock goes down, the number of shares they receive will actually go up. The movements happen in tandem, so that as long as the stock price remains between about $16.67 and $56, the whales will receive $1.67 billion of stock. Since they only invested $1 billion of cash, that means they should make about a 67% return on their money. If the share price zooms past $56, their returns, as well as those of everyone else, should increase.

But with such gains in their grasp, the big investors might want to cash out as soon as they can. If they dump everything right away, however, the stock price may plunge, because so many shares will be hitting the market at once, as Matt Levine of Bloomberg detailed in a column earlier this month. That could torpedo the value of the retail traders’ investments, but it wouldn’t do much damage to the whales. After all, if the stock falls, they would receive more shares to make up for the plunging price. They might then ditch those new shares, causing the price to fall once again.

“If this were any normal company,” says Michael Ohlrogge, a professor at New York University’s law school that studies SPACs, “and they said, ‘Hey, we’re bringing in some new investment, and these are the terms we’re giving our new investors,’ that would be a terrible sign—and the share price almost certainly would tank immediately.”

What do the big-money guys say about receiving such favorable terms in the Trump deal? They couldn’t be reached for comment, since their identities remain hidden. But if they were to weigh in, they probably would point out that they have skin in the game—which is true. If the share price falls below $16.67, they won’t be guaranteed a 67% return, and if it falls below $10, they could actually lose money. But that seems like a remote possibility at the moment, given that Trump fans are currently buying up shares at five times that amount. The whales, in other words, should be fine.

Same with the people who organized this charade. The man that helped set up the SPAC, Patrick Orlando, controls a firm that invested $11 million into the venture and received the right to 6.6 million shares. The latest agreement would theoretically put those shares in danger, just like the ones belonging to retail traders. But the fine print details a special arrangement for Orlando and some other insiders, giving them an additional 744,000 shares and warrants, worth roughly $50 million, as part of the deal. Altogether Orlando, who did not respond to a list of questions, is now sitting atop holdings worth an estimated $380 million. Not bad for an investment that only cost $11 million.

The division of Benchmark Investments that served as an advisor and placement agent, known as EF Hutton, is also sitting pretty. It helped the SPAC raise its initial pile of cash, along with two other firms, in exchange for $10 million and 144,000 shares. After assisting with the new, billion-dollar injection, EF Hutton will receive another $25 million, bringing its total haul to an estimated $42 million.

The owners of the Trump Media and Technology Group—which presumably include the former president himself—are in a better position than anyone. With little more than the Trump name, they managed to strike a deal that will give them up to 126 million shares. But after they reached the initial merger agreement, they still needed to come up with more cash to build a working product. Now, thanks to the mystery investors, they will have more than $1 billion at their disposal. It would be hard to spend that much money and not create some sort of meaningful enterprise. With the stock currently raging, their interest is now worth an estimated $6.4 billion. But even if things turn out terribly, they should still come away with a stake worth hundreds of millions. Representatives of Trump’s group did not respond to a request for comment.

The reason all of these groups are in such a great position is because so much of their risk has been foisted upon a final class of investors: the everyday traders buying in at home. Those who got in recently, at sky-high prices, are particularly vulnerable. They do not even know what percentage of the business is for sale.

And yet, the Trump fans keep buying.

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Dan Alexander
I am a senior editor at Forbes,... Read More

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GSA Administrator Who Shielded Trump Secures New University Job To Share Her Insights On Government Contracting

Zach Everson
Forbes Staff
Billionaires
I’m a staff writer at Forbes, reporting on money and politics.
GSA head Emily Murphy testifying before a Senate subcommittee hearing in June 2018.
Then-General Services Administration head Emily Murphy testifying before a Senate subcommittee hearing in June 2018. GETTY IMAGES
Emily Murphy, who protected Donald Trump as head of the General Services Administration from 2017 to 2021, landed a position last month at George Mason University, where she will share her insights on government-contracting issues.

“Like all senior fellows, she will be doing writing and research—from short research briefs to commentary pieces—on major government-contracting issues,” said the center’s executive director, Jerry McGinn. Murphy’s new position was first reported by FCW.

Murphy knows something about major government-contracting issues. In March 2017, before she took office, a contracting officer at the GSA declared that the Trump Organization was in compliance with the lease it signed with the federal government, even though Trump maintained an interest in the property and the lease seemed to prohibit public officials from owning part of the lease. When Murphy took over the GSA, she stepped into the controversy.

In a report released last week, House Democrats criticized the GSA under her leadership, citing Murphy’s refusal to comply with a subpoena to provide the panel with the hotel’s financial information. “GSA kept the American people in the dark about the poor financial health of the hotel and most importantly who was spending money at the hotel and how it might be influencing the Trump administration,” House Transportation and Infrastructure Committee chair Peter DeFazio (D-Ore.) said in a statement.

Murphy also attracted plenty of criticism when she refused to authorize the Biden transition team and denied it access to government resources until three weeks after the election was called.

In addition to her new role at George Mason, Murphy is an executive coach for CEO Coaching International. She also sits on the boards of advisors for SkillStorm, which trains and staffs tech workers for commercial and federal organizations, and government contractor Vita Inclinata. 

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