Since MicroStrategy (MSTR) transformed into a bitcoin treasury company in August 2020, the firm has effectively utilized various financial instruments to accumulate its impressive bitcoin (BTC) holdings. By primarily leveraging cash on hand, at-the-market (ATM) offerings, and convertible bond offerings, MicroStrategy has demonstrated an innovative approach to capital funding.
Recently, MicroStrategy announced its intent to raise up to $2 billion through perpetual preferred stock offerings, a method expected to further bolster its bitcoin acquisition strategy. This development came to light in a press release dated January 3, where Benchmark detailed the company’s plans involving one or multiple offerings of perpetual preferred stock.
During a recent investor meeting at the ICR conference in Orlando, Michael Saylor, Executive Chairman of MicroStrategy, elaborated on the specifics of this offering. Perpetual preferred stock is characterized by an indefinite maturity; it remains in effect unless the company opts to redeem it or establish a fixed maturity date. While shareholders will receive fixed dividend payments, they will not possess voting rights. Importantly, in a liquidation scenario, perpetual preferred stockholders are prioritized ahead of common shareholders, but come after debt holders.
This financial instrument is particularly appealing considering its lack of a defined maturity, in contrast to MicroStrategy’s existing convertible bonds, which typically have a tenor of four to eight years. The flexibility offered by perpetual preferreds allows for an extended duration in a company’s capital structure, reducing overall fragility, as emphasized by Saylor during the conference.
As Benchmark indicated, the perpetual preferred stock is positioned to yield mid-single digits, showcasing low volatility devoid of an options market—starkly different from convertible bonds. This stability is likely to attract major institutional investors, such as pension funds and banks, looking for reliable and fixed dividend payments.
Although specific terms regarding the perpetual preferred stock are yet to be disclosed, expected features include dividend payments, convertibility to Class A common stock, and redemption provisions, as outlined in MicroStrategy’s press release from January 3. This initiative is not just a capital-raising mechanism; it signals MicroStrategy’s enduring commitment to increasing its bitcoin treasury.
Benchmark has maintained a buy rating on MSTR, attaching a price target of $650. As of this past Monday, MicroStrategy further bolstered its holdings by purchasing an additional 2,530 BTC, raising its total to an impressive 450,000 BTC.
In the coming weeks, MicroStrategy’s Special Meeting for Shareholders is set to take place on January 21, where investors will vote on increasing both the authorized Class A common stock and preferred stock. Additionally, the company’s Q4 earnings call is scheduled for February 4, providing further insights into its strategic direction and market positioning.
