MicroStrategy Shifts to Perpetual Preferred Stock for Bitcoin Acquisitions, Announces $2B Capital Raise
Since MicroStrategy (MSTR) adopted its bitcoin treasury strategy in August 2020, the company has utilized three primary methods for acquiring Bitcoin (BTC): cash on hand, at-the-market (ATM) offerings, and convertible bond offerings. The company is now exploring a new approach to raise capital for its bitcoin acquisitions by introducing perpetual preferred stock, which was announced to the market on January 3.
MicroStrategy plans to raise $2 billion through one or more offerings of perpetual preferred stock, as reported by Benchmark. The company’s executive chairman, Michael Saylor, discussed the offering during a recent investor meeting at the ICR conference in Orlando.
Perpetual preferred stock is a type of equity that has no fixed maturity date, remaining in place indefinitely unless the company decides to redeem it or set a maturity date. Shareholders of perpetual preferred stock receive fixed dividend payments but do not have voting rights. In the event of liquidation, perpetual preferred shareholders are paid before common shareholders but after debt holders. The company may have the option to buy back the stock at a predetermined price after a specific date.
This method differs from MicroStrategy’s previous financing options, such as its convertible bonds, which have a fixed tenor of four to eight years. Some of these bonds are already in the money and eligible for conversion. Saylor explained that perpetual preferred stock offers the advantage of extended duration, acting as an embedded, indefinite call option for the company. This structure provides more stability and flexibility by allowing the company to avoid the shorter time frame associated with convertible bonds.
According to Benchmark, the perpetual preferred stock offering is expected to yield mid-single digits with low volatility and no options market, a stark contrast to the more complex convertible bonds. The perpetual preferreds would likely appeal to large institutional investors, such as pension funds and banks, as they offer stable, fixed dividend payments.
Though the exact terms of the offering have not yet been disclosed, MicroStrategy stated in its January 3 press release that the perpetual preferred stock offering will take place sometime in the first quarter. The terms are expected to include dividend payments, the ability to convert the stock into Class A common stock, and the provision for redemption of shares.
Benchmark has maintained a buy rating on MicroStrategy with a price target of $650.
As of Monday, MicroStrategy purchased an additional 2,530 BTC, bringing its total holdings to 450,000 BTC.
Looking ahead, MicroStrategy will hold a Special Meeting for Shareholders on January 21, where investors will vote on increasing the authorized Class A common stock and preferred stock. The company’s Q4 earnings call is scheduled for February 4.
