The analyst who wrote this article owns shares of MicroStrategy (MSTR).
Since MicroStrategy (MSTR) became a Bitcoin treasury company in August 2020, it has used three primary instruments to acquire Bitcoin (BTC): cash on hand, on-the-market (ATM) offerings, and bond offerings. convertibles.
MicroStrategy’s next method of raising capital is to purchase bitcoin through perpetual preferred shares, which was announced to the market on January 3. MicroStrategy announced a $2 billion capital raise via one or more offerings, according to Benchmark.
Benchmark recently hosted an investor meeting with MicroStrategy Executive Chairman Michael Saylor at the ICR conference in Orlando to discuss the perpetual preferred stock offering.
A perpetual preferred stock generally has no fixed maturity date and continues indefinitely unless the company chooses to redeem it or set a maturity date for it. Stockholders receive fixed dividends but have no voting rights. The company may have the right to repurchase the shares at a predetermined price after a specific date. In the event of liquidation, perpetual preferred shareholders are paid before common shareholders but after creditors.
Perpetual shares are an attractive instrument due to the lack of a fixed maturity date, unlike MSTR convertible bonds, some of which are already in the money and eligible for conversion. Convertible bonds typically have a duration of about four to eight years, Saylor said at the conference.
According to the memo, Saylor said perpetual preferences are advantageous because of their extended duration. The instrument functions as an embedded, undefined call option in addition to a lump sum payment of principal. The company would benefit because it would be less fragile due to the extended duration of the capital structure.
According to Benchmark, the perpetual preferred stock could achieve a mid-single-digit yield, with low volatility and an option-free market, the opposite of a convertible bond.
Perpetual preferences would be attractive to large institutions like pension funds and banks because they would receive a stable, fixed dividend payment.
The terms of the perpetual preferred shares have not yet been announced. We know that this will happen in the first quarter and that the terms of the offer are expected to include the payment of dividends, convertibility into Class A common stock and the possibility of share repurchase, according to MicroStrategy’s press release dated January 3 .
Benchmark maintains its Buy rating on MSTR with a price target of $650.
On Monday, MicroStrategy purchased an additional 2,530 BTC, bringing total holdings to 450,000 BTC.
Next week, MicroStrategy’s special shareholder meeting will take place on January 21. Investors will vote on whether to increase the number of shares of common stock and Class A preferred stock authorized. MSTR’s fourth-quarter earnings call is scheduled for February 4.
