Trump Media’s Impending Merger May Give Him a Financial Lifeline

Former President Donald J. Trump’s stake in Trump Media & Technology Group, his social media company, could be worth as much as $4 billion once a long-delayed merger closes.

The deal, with Digital World Acquisition Corp. — a publicly traded shell company — could provide him with a potential financial lifeline at a time when he must come up with the cash to pay a $454 million penalty following a New York judge’s ruling in a civil fraud case.

Digital World has scheduled a March 22 shareholder vote on the merger with Trump Media, whose flagship product, Truth Social, has become the social media platform of choice for Mr. Trump to attack his critics and political opponents.

But even if the deal closes, Mr. Trump would need to get a waiver from a lockup provision that restricts major stockholders from selling shares for at least six months. Trump Media did not respond to a request for comment.

Here’s a look at the challenges the deal has faced, and what could lie ahead for Mr. Trump if it closes.

Why has the merger between Trump Media and Digital World taken so long to close?

The proposed merger between Trump Media and Digital World, a special purpose acquisition company, or SPAC, was announced in October 2021. But the deal was held up by a two-year investigation by the Securities and Exchange Commission into talks between the companies that took place before Digital World went public. SPACs, which sell shares to investors before they can buy a company, aren’t supposed to have a deal lined up before their I.P.O. Digital World raised $300 million in its I.P.O. in September 2021.

Last July, Digital World agreed to pay an $18 million penalty to the S.E.C. and revise its corporate filings to better reflect the nature of those early negotiations. The S.E.C. signed off on the merger document this month, setting the stage for the shareholder vote.

The deal also had been stymied by a criminal investigation, in which federal prosecutors charged three men with taking part in a scheme to profit from the October 2021 merger announcement. The men are slated to go on trial in Manhattan federal court on April 29.

How many shares will Mr. Trump own?

Mr. Trump will have an overwhelming majority stake in the post-merger company and own 79 million shares. Shares of Digital World have soared this year on expectations that the deal will be completed and that Mr. Trump will win the Republican nomination for president. The stock traded on Monday at $47 per share. At that price, the former president’s stake would be worth nearly $4 billion.

Why can’t Mr. Trump trade or sell his shares right away?

The merger documents contain fairly standard language that limits major shareholders like Mr. Trump from selling shares for six months after the deal’s closing.

Lockup provisions, which are common in SPAC deals, are intended to assure investors that major shareholders will not immediately cash out after a merger is complete, said Kristi Marvin, a former investment banker and the founder of SPACInsider, a SPAC database. If a flood of restricted shares immediately hits the market, it could depress the stock price.

Digital World’s lockup provision also limits major shareholders from using the stock as collateral for a loan during that six-month period.

Can Mr. Trump transfer shares during the lockup period?

Yes. The provision permits a major shareholder like Mr. Trump to transfer shares to a trust. A trust backed by some of Mr. Trump’s shares might be able to use that stock as collateral for a loan. He also can transfer shares to an immediate family member.

Can the lockup provision be waived or amended?

Yes. The merger document states that Digital World reserves the right to waive the provision “at or prior to the closing” of the merger, and that would be the simplest way around it, securities experts said.

Trump Media’s board may also amend the provision after the merger to allow for limited share sales during the six-month waiting period.

Are there risks in changing lockup terms?

Changes in lockup terms that do not have a sound business rationale could open the door to shareholder lawsuits. That is especially true if the stock price subsequently drops sharply, several securities experts said.

How soon can the deal close?

SPAC mergers generally close within a few days of the shareholder vote. Once the deal is final, shares of Digital World, currently trading on the Nasdaq under the stock symbol DWAC, are expected to take the symbol DJT.

The first publicly traded company Mr. Trump was associated with — Trump Hotels and Casino Resorts — also traded under DJT. It filed for bankruptcy in 2004.

What could still derail the deal?

The most obvious obstacle would be if Digital World shareholders voted it down. But that is unlikely, given that most of the roughly 400,000 shareholders of the company are retail investors who had questioned the pace of the S.E.C.’s inquiry into the deal in online postings on Truth Social and other social media platforms.

Digital World warned somewhat cryptically in a Feb. 23 filing that “parties who may have political, economic or noneconomic motivations” may seek to delay the merger or block it altogether.

Could the insider trading charges delay the merger?

That’s unlikely. Two brothers and a former Digital World director have been charged with taking part in an insider-trading scheme that generated $22 million in illegal profits.

Court filings have included the names of a few other people who appear to have made timely trades around the merger announcement but none of them have been charged with any wrongdoing. There is no indication that anyone associated with Trump Media was involved in the improper trading.