MicroStrategy Targets $2B Perpetual Preferred Stock Offering: Benchmark

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 main instruments to acquire bitcoin (BTC): cash on hand, over-the-counter (ATM) offers, and convertible bonds.

MicroStrategy’s next capital raising method is to buy bitcoin through perpetual preferred stock. published on the market January 3. According to MicroStrategy Benchmark, announced a capital increase of $ 2 billion through one or more offers.

Benchmark recently held an investor meeting with MicroStrategy Executive Chairman Michael Saylor at the ICR conference in Orlando to discuss the perpetual preferred stock offering.

Perpetual preferred stock typically has no maturity date and will continue indefinitely unless the company decides to buy it back or set a maturity date. Stockholders receive fixed dividends but no voting rights. The company may have the right to buy back shares at a predetermined price after a certain date. In the event of a liquidation, perpetual preferred stockholders are paid before common stockholders but after debt holders.

The perpetual stock is an attractive instrument because of the lack of a fixed term, unlike MSTR’s convertible bonds, where some are already in the money and have the right to convert. The convertible bonds will have maturities of about four to eight years, Saylor said at the conference.

According to the memo, Saylor said perpetual benefits were beneficial because of their longevity. The instrument works as an embedded, unspecified option in addition to the one-time principal payment. Due to the longer duration of the capital structure, the company benefits because it is less fragile.

According to Benchmark, a perpetual preferred stock can achieve mid-single-digit returns in a market with low volatility and no options, in contrast to a convertible bond.

Permanent preferences would be attractive to large institutions such as pension funds and banks as they receive a fixed and fixed dividend payment.

The terms of the perpetual preference share have not yet been announced. We know it’s coming in Q1, and the terms of the offering should include a dividend payment, conversion to Class A common stock and a stock buyback on January 3, according to a MicroStrategy press release.

Benchmark has assigned a buy rating on MSTR at $650.

As of Monday, MicroStrategy Bought another 2,530 BTC for total holdings of 450,000 BTC.

Next week, MicroStrategy will hold a special meeting of shareholders January 21. Investors vote on the increase in authorized Class A common stock and preferred stock. MSTR’s Q4 earnings are scheduled for February 4.