Court Decision Finds Trump’s Media Venture in Violation of Key Stock Deal with ARC Global

Trump Media faces a Delaware court ruling for stock agreement violation, leaving investors and stakeholders on edge.

At a Glance

Trump Media breached an agreement with ARC Global, leading to a court ruling for more shares for ARC.
D. W. A. C. underestimated stock due to ARC in the merger, per Vice Chancellor Lori Will.
The ruling coincides with the upcoming window for insiders to sell their shares.
Trump Media’s stock recently plunged to $16.14 per share, affecting Trump’s financial stake.
The lock-up agreement preventing insider sales expires on Thursday.

Court Ruling Details

A Delaware Chancery Court ruled Trump Media & Technology Group breached its agreement with ARC Global, resulting in an order to issue more shares to ARC. This verdict follows an error attributed to Patrick Orlando, former CEO of Digital World Acquisition Corporation (DWAC). Vice Chancellor Lori Will concluded DWAC underestimated the stock value due to ARC in their merger, necessitating recalculations to correct the share distribution.

Judge Will set the stock-conversion ratio at 1.4911 to 1, a middle ground between DWAC’s and ARC’s propositions. Consequently, ARC is now entitled to 8,186,345 Class A shares in exchange for its 5,490,000 Class B shares. The court mandates immediate stock release to ARC so that they can sell or transfer the shares post the lock-up period ending Thursday.

Trump Media stock dips after judge finds company liable for breaching a contract https://t.co/Eez4xfPcCJ

— Quartz (@qz) September 17, 2024

Potential Market Impact

The decision comes at a critical juncture as insiders, including Donald Trump, will soon be able to sell their shares in Trump Media. Insiders offloading their stock could potentially undermine investor confidence, leading to further decline in the company’s market value, which has already dipped to $16.14 per share. Despite this, Trump announced he has “absolutely no intention of selling” his shares, a move aimed at shoring up investor trust.

Implications for Trump and Investors

The stock conversion ratio established by Judge Will will have significant financial implications for Trump, who owns approximately 57% of the company. This translates to a potential market capitalization impact, given that Trump Media is concurrently grappling with multimillion-dollar net losses and a declining stock performance. The urgency for ARC to receive more than half a million additional shares underscores the high-stakes environment surrounding this corporate dispute.

“ARC is entitled to 8,186,345 Class A shares in conversion for its 5,490,000 Class B shares,” Will wrote in a separate order. She also ordered the parties to work with an escrow agent “for the release [of] the appropriate number of shares to satisfy ARC’s conversion rights” so that the investor “can freely sell or transfer those shares upon the expiration of the contractual lock-up.”

The ruling also highlights broader organizational issues, including accusations of mismanagement and the removal of Orlando as CEO before the closure of Trump Media’s public trading deal. Additionally, Orlando faces a lawsuit from the U.S. SEC for failing to disclose the merger plan with Trump Media, further complicating the legal landscape for all parties involved.

Trump Media breached an agreement with one of the investors that helped the company go public, and must grant the investor a larger share of its stock, a judge rules. https://t.co/dIYd7stdEP

— NBC News (@NBCNews) September 18, 2024

Outlook and Future Considerations

Trump Media’s value, which once peaked at nearly $10 billion, now faces scrutiny amidst ongoing lawsuits and financial losses. The company’s market capitalization remains over $3.3 billion, but its recent quarterly loss of $869,900 raises questions about future performance and sustainability. With significant shares soon available for sale, the actions of key stakeholders and the market’s reaction will be crucial to monitor.

“immediately” work to release the stock to ARC “such that ARC can freely sell or transfer those shares upon the expiration of the contractual lock-up.”

Investments in Trump Media also carry political weight, often viewed as a means to support Trump politically. With Trump holding steadfast in his decision not to sell his shares, observers remain divided on whether this will reassure or further alarm the market. The upcoming expiry of the lock-up agreement will be a litmus test for the company’s future trajectory.