Shares of former President Donald J. Trump's social media company fell sharply on Monday after the company filed to register a potential sale of tens of millions of additional shares.
Trump Media and Technology's stock price fell 18%, wiping hundreds of millions of dollars from the company's market value and hurting Trump's majority stake, worth more than $3 billion. The company's stock has fallen more than 50% since it soared on its first day of trading as Trump Media, pushing its value to about $8 billion at one point last month.
Trump Media was expected to register a potential stock sale after completing its merger last month with Digital World Acquisition Corp., a well-funded shell company known as a SPAC. Companies merging with a SPAC (special acquisition purpose company) typically file a registration statement to sell additional securities held by initial investors several weeks after the transaction closes.
In its filing, Truth Social's parent company, Trump Media, listed more than 146 million shares available for sale and 21 million shares converted after exercise of stock options, which would allow it to make investments. Homes will be able to purchase stocks at low prices. Preset price. When a SPAC goes public, it issues stock acquisition rights to investors that can later be converted into shares.
The company said investors had no immediate plans to sell these shares, but investors reacted to the idea that a large number of new shares hitting the market could depress the company's stock price. .
The filing also included that Trump would be given an additional 36 million shares as part of an “earn-out” bonus based on the company's stock price. With these additional shares, Mr. Trump now owns approximately 115 million shares, or 65% of Trump Media.
Some of the stocks registered for sale include those held by major hedge funds such as Anson Funds, Hudson's Bay, Mangrove Partners and Washington Muse Investments, which have been linked to Trump Media. It had acquired discounted shares and stock acquisition rights from Digital World before its merger with Digital World. Other companies, including Millennium Partners and Pentwater Capital, had built up stakes in the company by buying warrants.
Trump Media will not receive any proceeds from the shares sold by investors, but it could receive tens of millions of dollars in cash from exercising stock options.
Trump Media said in a news release Monday that the filing does not indicate that the shareholders named in the statement plan to sell their shares. The company also noted that the filing does not change the six-month limit on Mr. Trump and other major shareholders selling their stock by late September.
Before stockholders can sell their shares, the registration statement must be reviewed and approved by the Securities and Exchange Commission.
Some investors had hoped to profit from the move, expecting Trump Media's stock price to plummet after the expected stock registration filing. Fund managers including Marshall Weiss and Zazov Associates are large holders of Trump Media warrants, according to regulatory filings. These warrants are trading at a much lower price than Trump Media's stock, in part because they haven't yet been registered, and in part because of the stock's meteoric rise at the start of trading.
To profit from the difference, the fund short-sold the stock, betting that the stock price would fall if the rights were registered, according to people familiar with the fund's trading. Marshall Weiss and Zazobe declined to comment.
The deal made Trump Media one of the most shorted stocks in the U.S., spurring demand from investors looking to bet on the company's stock price falling. Even before the filing arrived, Trump Media shares had fallen more than 50% since the first day of post-merger trading as questions remained about Truth Social's ability to generate revenue and profits.
Last year, Trump Media lost $58 million on revenue of $4.1 million, all from advertising on Truth Social.
Warrants have also fallen sharply over the past few weeks, down about 50% since the beginning of the month.
Short sellers borrow a company's stock, sell it on the market, bet that the price of the stock will fall in the hope of buying it back later at a lower price, and then return the stock to the lender and pocket the difference as profit. Masu.
Matthew Unterman of research firm S3 Partners said the potential for a large influx of new shares into the market would make it easier for short sellers to bet on Trump Media stock. He said Trump Media is one of the more expensive stocks to short at the moment because it doesn't have a large supply of stock to borrow.