Column: Trump's media company is going public, netting him billions. Why would anyone invest in it?

Former President Donald Trump speaks at the Road to Majority conference Friday, June 17, 2022, in Nashville, Tenn. The Supreme Court's decision that women have no constitutional right to an abortion marked the apex of a week that reinforced Trump's grip on Washington more than a year and a half after he exited the White House for the final time. The same Supreme Court now dominated by Trump-appointed conservatives also voted to weaken restrictions on gun ownership.(AP Photo/Mark Humphrey)
Investors in Truth Social, Donald Trump's money-losing social media platform, voted to take it public at a valuation that could net him about $3 billion. (Mark Humphrey / Associated Press)

The headline Trump news on Friday was that investors in Truth Social, his money-losing social media platform, voted to take it public at a valuation that could net the former president about $3 billion.

There's some press conjecture that the transaction will relieve Trump's current cash crunch, which includes the necessity of his posting a bond to cover a roughly $500-million court judgment by Monday to stave off the seizure of some of his properties by New York Atty. Gen. Letitia James. That speculation is probably, though not certainly, wrong.

From a financial standpoint, the primary questions are: Should you believe that figure? And, would anyone in their right mind invest in this thing?

My back-of-the-envelope judgments are: Probably not, and probably not. This is not investment advice, but, really?

Let's take a closer look.

Truth Social will go public via a merger with a special purpose acquisition company, or SPAC, called Digital World Acquisition Co. The merger was approved by investors in DWAC on Friday.

That arrangement comes to fruition despite several questionable aspects of the transaction. SPACs are supposed to come into existence (via an initial public offering) without any prearranged acquisition deals, but rather to hunt them down within a set period, normally within two years of their formation.

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The Securities and Exchange Commission, however, charged in July that DWAC had "formulated a plan to acquire and was pursuing the acquisition of TMTG" prior to its own IPO, and failed to disclose that to investors. (TMTG is Trump Media and Technology Group, the parent of Truth Social.) DWAC settled the SEC case for $18 million.

It should be noted that SPACs in general don't have the best reputation in the corridors of the SEC, because they could be used to execute initial public offerings without making the customary pre-IPO disclosures to investors.

The Trump deal, which has been percolating for more than two years, looked from the first like a potential high-water mark for SPAC-related investment scams, as I wrote in 2021.

The merged entity is expected to be priced at a valuation of about $5 billion. As 60% owner of the entity, Trump would stand to own about $3 billion in shares.

It should be plain that the valuation has no rational relationship with Truth Social's financial picture, which is ugly in the extreme.

In a prospectus issued last month, DWAC disclosed that Truth Social collected a mere $3.4 million in revenue during the first nine months of 2023 and booked a loss for that period of $49 million.