The SEC filings for March and April shed light on the Trump Media merger, revealing disappointing news for new shareholders from Digital Acquisition. Several negative developments have impacted the merger process. Firstly, the market environment turned negative in 2023, slowing down merger actions and causing Digital Acquisition stock to stagnate. Secondly, high expenses for Digital Acquisition were worsened by a misleading SEC filing that led to an $18M settlement, reducing the money available for transfer to Trump Media in the merger.
Additionally, Trump Media was experiencing negative earnings, with moderate revenues and large expenses. To stay afloat, the company relied on private loans, resulting in a more negative shareholder balance. Both Digital Acquisition and Trump Media management employed a questionable strategy to raise cash by offering conversion into new, bargain-priced shares of stock in the event of a completed merger. This tactic ultimately devalued the original Digital Acquisition shares purchased at full market value.
The convertible borrowings employed by both companies had a significant impact on the merger. It is evident in the March 25 8-K filing that shows the increase in new shares due to the merger. The book value of Digital Acquisition shares, originally priced at $10 per share, had decreased to $7.60 due to expenses, while Trump Media had negative book value. This, combined with a higher number of original Trump Media shares, significantly lowered the per share book value.
With low revenues compared to expenses and an increasing number of common stock shares, Trump Media faces challenges in maintaining its high price post-merger. The company will need to demonstrate significant growth and revenue improvements to sustain its value. Ultimately, the cash infusion from the merger may not lead to immediate positive results for shareholders, given the financial challenges faced by both Digital Acquisition and Trump Media.
