Trump Media & Technology Group has been ordered to grant additional stock to an early investor after breaching an agreement regarding stock conversion ratios.
CNBC reported that the ruling from Delaware Chancery Court Vice Chancellor Lori Will comes just days before a lock-up period expires, allowing major stakeholders, including Donald Trump, to begin selling shares.
The court found that Trump Media underestimated the stock owed to ARC Global as part of a merger agreement, leading to the ruling in favor of the investor.
The dispute revolves around a stock conversion agreement as part of a merger finalized earlier this year. ARC Global, a significant early investor, held Class B shares that were meant to convert to Class A shares at a 1-to-1 ratio.
However, Trump Media’s partner in the deal, Digital World Acquisition Corp. (DWAC), issued more Class A shares than expected, prompting the need for a revised conversion ratio.
DWAC and ARC Global disagreed over what the new conversion ratio should be. DWAC proposed a conversion of 1.3481 Class A shares for every Class B share, while ARC Global argued that the ratio should be closer to 1.8178. After reviewing the case, Vice Chancellor Will settled on a ratio of 1.4911 to 1.
The court’s decision means ARC Global will receive 8,186,345 Class A shares in exchange for its 5,490,000 Class B shares.
Will also ordered both parties to work with an escrow agent to ensure the proper number of shares is released to ARC Global once the contractual lock-up period expires.
The lock-up period, which prevented insiders like ARC Global and Trump from selling their shares, is set to end on Thursday. This could trigger a wave of stock sales by early investors, potentially impacting the value of Trump Media.
Despite the looming expiration of the lock-up period, Trump has publicly stated that he has "absolutely no intention of selling" his shares, which may help maintain confidence in the stock.
ARC Global and other insiders are expected to sell their shares once the lock-up expires. While this could lead to a significant payday for these stakeholders, it also has the potential to drive down Trump Media’s overall value, which has already seen a steep decline. The company’s valuation has fallen by billions due to a prolonged slump in its stock price.
This court ruling is just one of many legal disputes Trump Media is involved in. In addition to the case with ARC Global, the company is also facing lawsuits with other parties.
One such case, in Florida, involves Trump Media warning of an imminent sale of over 18 million DJT shares by ARC Global and United Atlantic Ventures. Trump Media sought an emergency court hearing regarding that matter on Monday, the same day Vice Chancellor Will made her ruling in Delaware.
Trump Media, which has a market capitalization of over $3.3 billion, has struggled with financial losses in recent months.
The company has reported multimillion-dollar net losses, further contributing to its stock slump.
Donald Trump remains the majority shareholder of Trump Media, holding 114,750,000 shares, representing 57% of the company. Despite the company's financial challenges, Trump’s shares are valued at nearly $2 billion. His public statement that he has no plans to sell his stake helped to boost investor confidence, leading to a rise in the stock price of DJT shares.
For many investors, supporting Trump Media is seen as a way to show support for Trump’s political fortunes, adding a political dimension to the company’s stock movements. Trump's decision not to sell his shares could play a key role in stabilizing the stock price after the lock-up period ends.
With the court ruling in their favor, ARC Global is now entitled to sell or transfer its newly converted Class A shares after the lock-up period expires.
Vice Chancellor Will’s order ensures that ARC Global will receive the appropriate shares and can dispose of them as they see fit. It remains to be seen how ARC Global and other investors will respond once the restriction is lifted on Thursday.
As more investors may be looking to sell, the overall market reaction will be closely watched. While Trump Media’s market value remains substantial, the sale of large amounts of stock could drive volatility in its share price.
