Trump’s Stock Option Surges to USD 1.3 Billion Amid Truth Social’s Rally

U.S. Former President Donald Trump
U.S. Former President Donald Trump. Credit | Getty images

United States – Donald Trump has gotten a stock option worth USD 1.3 billion, which is half of his majority stake. This is just because of the rapid rally in shares of his Social Media app company, Truth Social.

Implications of the Stock Option

The award of more than 26% of the entire Trump Media & Technology Group (TMTG) (DJT.O) will bring the former US president’s stake to USD 4.1 billion.

Meanwhile, Trump has indicated that he will not surrender any of the TMTG shares until the 1st of September. This extra revenue of about half a billion is a welcome boost to a fortune belonging to him, which, according to Forbes, is valued at USD 4.7 billion, as reported by Reuters.

Unlike so many of his real estate holdings, shares are much easier to sell off on the stock market and could provide financial assistance if there are legal fees and fines against him, such as the USD 454.2 million suit in his New York civil fraud case, which is being appealed.

Earnout Structure and Industry Norms

Visual Representation. Credit | Shutterstock

This bonus also illustrates that trading in TMTG stocks has been fantastic. They have been on a roller coaster ride since they listed Nasdaq after the merger with a special purpose acquisition company (SPAC). Their shares have been acquired by a large number of Trump supporters and speculators.

Trump will later hold the stock bonus per the SPAC terms, but only after TMTG’s stock trades above USD 17.50 for 20 consecutive days from the stock listing date, which is March 26. They closed at USD 35.59 on Monday and would have to drop by more than 50% on Tuesday for him to not make any profit.

Market Performance and Valuation

Visual Representation. Credit | REUTERS

While TMTG has been given a valuation of USD 5 billion, which is equal to 1,220 times the USD 4.1 million revenue the profitless company reported in 2023.

No other US company is even close to market capitalization as LSEG has such a high valuation multiple, according to figures from LSEG. However, TMTG has admitted in their regulatory filings that the losses that it is incurring make it “a questioned survive” as a company.

A TMTG spokesperson declined to comment on the stock award to Trump. “With more than USD 200 million in the bank and zero debt, Trump Media is fulfilling all its obligations related to the merger and rapidly moving forward with its business plan,” the spokesperson said.

Trump might be happy with the pittance, but the earnout structure is a norm in the industry where many companies only have paper profits. Referring to a report by law firm Freshfields Bruckhaus Deringer, it seems that in more than half of SPAC mergers conducted in 2022, stock earnouts for management were observed.

Notwithstanding, comparatively few directors check off these earnout bonuses because more SPAC deals underperform and tank on stock markets, said securities lawyer Michael Levitt of Freshfields. TMTG’s case is unusual because its stock is going up disproportionately to its business performance.

“Many earnouts in SPACs are never satisfied because many SPAC prices fall significantly after the merger is completed,” Levitt said.

Contract Amendments and Threshold Adjustments

However, this does not mean that the TMTG deal helped Trump to get the earnout amount that is required by the contract. When TMTG and the SPAC announced the deal in October 2021, the plan was that TMTG shares must be traded at the order of USD 30 per share to earn the earnout bonus for Donald Trump. The two sides changed the deal to a lower threshold of USD 17.50 in August 2023 according to their Regulatory filing, as reported by Reuters.

Three-Year Window for Maximum Earnout

If this hadn’t occurred, Donald Trump wouldn’t have reached his target yet since last week, their shares were traded at less than USD 30. The structure of the contract allows Trump three years from listing to achieve the maximum earnout, so he might have still received the payment if the sales prices had exceeded the threshold for 20 days in any 30-day period throughout this period.