Shares of Trump Media & Technology Group (NASDAQ: DJT) fell 18.4% on Monday, after the Donald Trump-owned social media company announced plans to allow existing investors to exercise stock warrants far ahead of their previously agreed-upon schedule.
Trump Media wants to let insiders sell much earlier than expected
In an SEC filing Monday morning, Trump Media & Technology Group revealed plans to allow the future potential sale of millions of shares currently restricted under the terms of warrants held by investors that can be converted into shares of common stock. Trump Media & Technology Group also plans to allow shares held by company insiders to be sold ahead of schedule. The filing notably includes all shares held by the former president, whose roughly 57% ownership stake in the company remains subject to a lockup period that restricts Trump from selling his shares for approximately another five months. Trump's social media network, Truth Social, is the company's primary asset.
For perspective, Trump Media & Technology Group only just became a publicly traded company late last month, completing its SPAC merger with so-called blank-check company Digital World Acquisition Corp. on March 25.
What's next for Trump Media & Technology Group investors?
Lockup periods and warrant restrictions are generally put into place to protect newer investors in recently public companies, by preventing insiders from cashing out on their stakes en masse. But under the terms of this amendment, Trump Media & Technology Group will open the doors for around 21.5 million shares to be sold by those insiders, which would effectively dilute existing shareholders by more than 15%.
Today's 18%-plus drop, then, is merely commensurate to the number of new shares that could soon flood the market. Given the prospect of being so severely diluted so early in the company's public history, it's hard to blame some investors for taking their money off the table in response today.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
