The SEC filings for March and April shed light on the disappointing outcome of the Trump Media merger for new shareholders from Digital Acquisition. Several negative developments contributed to this disappointing result. Firstly, the market environment turned negative in 2023, leading to decreased interest and a slowdown in merger actions. This caused Digital Acquisition stock to stagnate. Secondly, high expenses for Digital Acquisition were exacerbated by a misleading SEC filing that resulted in an $18 million settlement, eating into funds that were supposed to transfer to Trump Media in the event of a merger. Thirdly, Trump Media was running negative earnings with moderate revenues and large expenses, leading them to rely on private loans to sustain the company.
Furthermore, both Digital Acquisition and Trump Media management employed a questionable strategy to raise cash by offering conversion into new, low-priced shares of stock if the merger was completed. This resulted in lenders receiving stock for repayment instead of cash. This strategy compromised the value of shares bought at full market value by shareholders. The convertible borrowings have had a significant impact, as evidenced in the March 25 8-K filing under “Note 5 – Loss Per Share.” The table in the filing shows the accumulation of new shares due to the merger.
In terms of book value, the Digital Acquisition IPO was priced at $10 per share, with funds held in trust earning interest. However, there was also a “founder” position that equaled a quarter of the offering at a near-zero cost, reducing the per-share book value to $8. With significant expenses for Digital Acquisition, the book value at the time of the merger was $7.60. On the other hand, Trump Media had negative book value before the merger, resulting in a per-share book value of $1.88 when combined with original shares and new shares from Digital Acquisition.
Given Trump Media’s struggles with low revenues compared to expenses and a growing number of common stock shares, which are nearing 200 million, without a substantial improvement in growth and revenues, maintaining a high stock price will be challenging. The merger has not had the transformative impact that shareholders may have hoped for, and the financial challenges facing Trump Media are significant. It remains to be seen how the company will address these issues and work towards achieving sustainable growth and profitability in the future.
