Trump's new media company is a $10 billion mirage

(SAUL LOEB/AFP via Getty Images)

In October, former President Trump announced the creation of a new company, Trump Media & Technology Group (TMTG). Its signature product is a new social media site, Truth Social. According to an investor presentation, Truth Social and the larger company will "be a fountainhead of support for American freedoms as the first major rival to 'Big Tech.'" TMTG will "even the playing field" of a media landscape that "has swung dangerously far to the left." 

Initially, TMTG suggested that Truth Social was based on "proprietary" technology. It was later forced to admit that the code was taken from Mastodon, an open-sourced decentralized social network that anyone can use. Gab, an existing social media network geared toward the far right, already uses Mastodon. So neither the technology nor the concept is new.

TMTG promised that "TRUTH Social plans to begin its Beta Launch for invited guests in November 2021." But November 2021 came and went without the Beta Launch or any update from the company. The Truth Social homepage is a single static page that collects email addresses. 

TMTG was also subject to criticism for failing to announce "anyone involved in building its supposed technology." The only people identified as involved in the company's operation were Trump and Scott St. John, a game show producer that will supposedly be involved in TMTG's streaming service, TMTG+, which is supposed to launch sometime in 2023. 

An updated version of the TMTG investor report lists a "Technology Team," but the members of the team are identified only by their first name and last initial. TMTG's Chief Technology Officer (CTO) is Josh A. Who is Josh A? He may have worked for Apple, or Little Debbie Snacks, or Gab. TMTG does not specify. The "Technology Team," TMTG warns, is "subject to change." But don't worry, if Josh A departs for greener pastures, TMTG can rely on their Chief Product Officer (CPO) Billy B. 

On Monday, TMTG announced that Congressman Devin Nunes (R-CA) will be retiring from Congress to become the company's CEO in January. Nunes has no experience in the media business and once sued a fictional cow for making fun of him on Twitter.

Writing in Bloomberg, Matt Levine concludes there is "almost no sign that TMTG is actually building a social network or a streaming platform or anything else." Nevertheless, TMTG projects 121 million monetizable users and $3.6 billion in revenue by 2026. (In 2021, it more conservatively projects $1 million in revenue.)

Will TMTG's rosy predictions come true? It seems very unlikely. But, critically, Trump does not have to meet these projections — or even stand up a real company — to make lots of money. 

SPAC to the future

Just a few weeks after TMTG launched, it announced that it was merging with Digital World Acquisition Company (DWAC), which is a publicly-traded Special Purpose Acquisition Company (SPAC). A SPAC, also known as a blank check company, is formed specifically to merge with another company and take it public. In this case, investors in DWAC would pay Trump $293 million in exchange for 18% to 25% of TMTG, which doesn't really operate yet as a business. 

Prior to merging with TMTG, a share of DWAC was valued at $10. Shortly after the merger was announced, DWAC stock, perhaps buoyed by Trump fans, was trading as high as $175 per share. It has since settled in at around $50, which still values TMTG at more than $10 billion. That's not bad for a company that has no product, no users, no publicly identified executives, and no revenue. It is trading at $50 because that is what people are willing to pay for it. 

TMTG has not "completed its merger with DWAC or made associated securities filings." But if the deal closes in the first quarter of 2022, Trump and DWAC investors are likely to make a lot of money. Trump will get the proceeds from the initial deal and the investors will be able to realize a return by selling their shares. Trump will collect his money long before anyone figures out if TMTG is a real company — much less a profitable one. 

The SEC has questions

In its initial SEC filing, DWAC represented that it had "not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target."

Multiple media outlets, however, reported that DWAC CEO Patrick Orlando was involved in discussions with Trump months before DWAC began trading. The SEC is now seeking information "about [DWAC's] trading policies and communications between the SPAC and Mr. Trump’s company."

If the investigation determines that the deal between DWAC and TMTG was agreed to in advance, DWAC’s SEC filing could be considered "false or misleading with respect to [a] material fact." That could be a violation of federal securities laws. 

The money PIPE

The SPAC deal, if it is completed, will earn Trump $10 a share. But the company is currently trading at over $40 a share. How does Trump capture even more of that cash as soon as possible?

While the merger is pending, a SPAC and its target have the ability to privately sell more shares to raise capital. This is called a Private Investment in Public Entity (PIPE). On Saturday, TMTG announced a $1 billion PIPE investment. These shares will be purchased at a substantial discount from the current retail trading price. That means Trump, before TMTG has a single product or subscriber, could collect $1.3 billion. 

But who is investing $1 billion in Trump's virtually non-existent company? TMTG does not say. They identify the source of the cash as "a diverse group of institutional investors." The identity of the investors is critical in light of Trump's future political ambitions. He may run for president again in 2024. What if, for example, the investors include the Saudi sovereign wealth fund?

The structure of the PIPE deal, however, suggests that these investors are less interested in influencing a future president than fleecing retail traders for a quick buck. Levine notes that typically "in SPAC mergers, the PIPE investors can’t sell their stock the day after the merger closes." Rather, the PIPE investors need to wait "a couple of months." In this case, however, "DWAC and TMTG have promised the PIPE investors that they’ll be able to freely resell their stock the minute the merger closes."

In other words, there seems to be a real push by these investors to flip these stocks immediately. The investors, whoever they are, seem to be keenly aware that time is not on their side. They want to be able to cash out before anyone gets too much information about how the company actually performs. 

It's a deal that makes Trump money and the investors money. The people holding the bag will be retail investors paying premium prices for a mirage of a company because they like Trump. 

That group includes Marjorie Taylor-Green (R-GA), who bought between $15,000 and $50,000 worth of DWAC on the day it announced its merger with TMTG. She paid somewhere between $67.96 and $175 per share. That means she's probably already lost about half of her investment — and possibly a lot more.