The cash-strapped Donald Trump would surely love to quickly access the billions of dollars his newly public media company is now worth.
He might have no choice but to wait.
The former president and his allies have options to try to short-circuit the “lock-up” period now in place for large shareholders of Trump Media & Technology Group Corp. (DJT).
But making such a move, a variety of corporate finance and IPO experts told Yahoo Finance this week, could very quickly become extraordinarily messy.
History shows such a maneuver could lead to a stock price drop followed by an “inevitable lawsuit” on behalf of public market shareholders, according to Jay Ritter of the University of Florida’s Warrington College of Business.
This is a merger that “has already been a gravy train for lawyers,” Ritter added, and litigation would likely begin anew if there were even a public discussion of waiving the standard short-term trading prohibition.
Usha Rodrigues, a corporate finance and securities law specialist at the University of Georgia, largely agreed. Any downward price action following a move to waive Trump’s agreement would allow shareholders to show injury and give them standing to sue, she said.
“There’s bad optics if a founder or a major shareholder seems to be running for the hills,” she added in an interview this week.
The idea behind a lock-up period is to protect a newly public company’s interests and allow it to preserve stability before its founders can cash out.
But that six-month prohibition creates a potential dilemma for Trump as he faces a possible near-term cash crunch on multiple fronts.
A price surge this week in the parent company of Truth Social also means his stake in the company is now worth well over $4 billion. The paper windfall has doubled Trump’s net worth and put him, for the first time, among the world’s 500 richest people.
What remains unclear is if Trump and his allies are actively pondering an attempt to waive the lock-up period. Company representatives didn’t respond to a request for comment.
Other developments this week — notably a legal win for Trump Monday around the civil fraud judgment against him — could lessen his need for quick cash.
But this giant reserve of money could nonetheless be a tempting asset in the coming six months when Trump will simultaneously be trying to ward off an array of legal challenges while also trying to win an election over President Joe Biden.
What trying to waive the lockup might look like
There are some examples in recent history of newly public companies amending their lockup procedures — especially in the technology space — but none under quite the political microscope that Trump finds himself in this year.
But if he were to try and undertake such a move, he would start with some significant advantages.
For starters, his company is populated by a board of directors that is uniquely sympathetic to the former president. The seven-member panel includes multiple former Trump cabinet officials and Devin Nunes, the former congressman and current CEO of the Trump Media & Technology Group. Even Trump’s own son, Don Jr., is on the board.
Trump also owns 60% of his company’s shares, making his voice determinative if he chose to participate in a shareholder vote.
But Trump might have no choice but to involve other shareholders, and that’s where it gets complicated quickly.
Xavier Kowalski is a former M&A lawyer now at the University of Florida. He noted that Trump and his allies would likely need to call for a shareholder vote if they seek to amend the company’s certificate of incorporation.
If Trump chose to ignore what most would consider a clear conflict of interest and participate in such a vote, Kowalski says, “that is a dangerous fact pattern that invites a shareholder lawsuit.”
The more legally sound path, it seems, would be to hold a shareholder vote but limit it to non-conflicted insiders.
Reena Aggarwal at Georgetown’s McDonough School of Business pointed out how that is far from an easy process. “It’s expensive in terms of the dollars involved, and it’s expensive in terms of the time involved,” she said.
Professor Ritter, who is known as “Mr. IPO” for his work on initial public offerings, also noted such a move could backfire with it possible, and perhaps even likely, “that the shareholders will say no.”
And even then, all that wouldn’t guarantee a shareholder lawsuit wouldn’t follow that could seek an injunction to try and stop the waiver attempt before Trump could sell a single share.
“A judge would be asked to make a decision either allowing the sale of shares or prohibiting the sale until the litigation was finished,” predicted Ritter.
Will Trump try?
All these complications are likely weighing on Trump and his allies as they weigh whether to attempt such a procedure.
The news Monday that he won a bid Monday to pause the $454 million civil fraud judgment against him if he posts a smaller $175 million bond instead could lessen some of the pressure.
Trump said he already has the cash to cover that smaller bond amount due next week, which would allow him to avoid potential asset seizures following his company’s conviction for fraud.
But Trump’s 2024 campaign could use the cash as well. The latest filings show Biden’s reelection campaign is significantly outraising Trump. As of the end of February, the current president has $71.2 million on hand versus Trump’s $33.5 million.
Another option that Trump could pursue to leverage the forthcoming windfall in advance would be to try and help secure a loan before the lock-up period ends. But that’s seen as an even more complicated option, with language in the merger agreement that appears to explicitly prohibit Trump from using the shares as collateral.
In any case, Trump is now a direct participant in public markets for the first time since the early 2000s, which he has courted throughout his career with mixed success.
Professor Rodrigues noted that the tighter scrutiny Trump will be subject to, whether or not he tries to waive the lock-up procedure, could result in a different kind of scrutiny of Trump and his business practices with public shareholders now involved.
“I won’t say that different rules apply, but there’s a lot more attention,” she said.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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