ver the course of 75 years, Donald Trump amassed a pile of assets—skyscrapers, hotels, golf courses and so on—worth an, after subtracting debt. Then, in practically no time at all, he conjured up a new business, the Trump Media and Technology Group, which hasn’t done much yet but plans to launch a social media company and various other ventures. Investors are already suggesting it’s worth about $10 billion.
The people valuing Trump’s enterprise at this price are everyday stock pickers. They still can’t purchase shares in the Trump Media and Technology Group, but they can buy stock in a pile of cash—also known as a special purpose acquisition company, or SPAC—that plans to merge with Trump’s business. News of the merger sent shares in the SPAC soaring from about $10 to $60 apiece over the last four weeks.
If the stock remains at $60, the SPAC shareholders will be left with an estimated $2.2 billion interest in the combined company after the merger. Investors in 15 million warrants tied to the SPAC will be sitting on another $300 million. The current owners of Trump’s company—it’s not yet clear what the former president’s personal interest is in the business—will receive an estimated 86 million shares as part of the deal, worth $5.1 billion.
It’s a lot of money riding on a barely formed business. In general, investors have a tendency to overvalue SPACs, which are structured in a way that dilutes everyday stock pickers. In an, researchers at Stanford and New York University looked at 16 SPACs that merged in 2019 and 2020, then traded for at least 12 months after their mergers. On average, they lost 35% of their value during that time, even as the overall market grew.
The reason this SPAC has gotten so much hype is because it’s tied to one of the greatest marketers in the history of American business, Donald Trump. Past presidents have cashed in on their fame by
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