The analyst who wrote this piece 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, at-the-market (ATM) offerings and convertible bond offerings.
MicroStrategy’s next method of raising capital is to purchase bitcoin through perpetual preferred stock, which previously announced to the market on January 3. MicroStrategy has announced a capital raising of $2 billion through one or multiple offerings, according to Benchmark.
Benchmark hosted a recent investor meeting with MicroStrategy executive chairman Michael Saylor at the ICR conference in Orlando to discuss the perpetual preferred stock offering.
Perpetual preferred stock usually has no fixed maturity date and continues indefinitely unless the company chooses to call it or put a maturity date on it. Stock shareholders receive fixed dividend payments but no voting rights. The company may have the right to buy back the stock at a predetermined price after a certain date. In the case of a liquidation event, permanent preferred stockholders are paid before common shareholders but after debt holders.
Perpetual stock is an attractive instrument because of the lack of a set maturity date, unlike MSTR convertible bonds, some of which are already in the money and eligible for conversion. Convertible bonds tend to have a tenor of about four to eight years, Saylor told the conference.
According to the note, Saylor said perpetual preferreds have an advantage because of their extended duration. The instrument works as an embedded, unconditional call option in addition to a lump-sum principal payment. The company will benefit because it is less fragile due to the extended duration of the capital structure.
According to Benchmark, perpetual preferred stock can achieve mid-single-digit yields, with low volatility and a no-options market, the opposite of a convertible bond.
Perpetual preferreds will be attractive to large institutions such as pension funds and banks, as they will receive a stable and fixed dividend payment.
The terms of the perpetual preferred stock have not yet been announced. We know it’s coming in Q1, and the terms of the offering should include dividend payments, convertibility into class A common stock, and a share redemption provision according to MicroStrategy’s Jan. press release. 3.
Benchmark maintains its buy rating on MSTR with a price target of $650.
On Monday, MicroStrategy bought an additional 2,530 BTC bringing the total to 450,000 BTC.
Next week, MicroStrategy’s Special Meeting of Shareholders will take place at Jan. 21. Investors will vote on the increase in authorized class A common stock and preferred stock. MSTR’s Q4 earnings call is set for Feb. 4.
