MicroStrategy (MSTR), a company that transformed into a bitcoin treasury holder in August 2020, has increasingly focused on acquiring bitcoin (BTC) through various capital raising instruments. These include cash reserves, at-the-market (ATM) offerings, and convertible bond offerings. However, the company’s latest approach is to raise $2 billion via perpetual preferred stock, as announced on January 3, 2025. This shift to perpetual preferred stock signals a strategic move to strengthen its capital structure while continuing to invest heavily in bitcoin.
What is Perpetual Preferred Stock?
A perpetual preferred stock is a type of equity that has no fixed maturity date. This means it continues indefinitely unless the company decides to redeem it or set a maturity date. Shareholders receive fixed dividend payments, but they do not have voting rights. If a liquidation event occurs, holders of perpetual preferred stock are paid before common shareholders, but after debt holders. The key advantage of this instrument is its long duration, which provides stability to the issuing company.
In contrast to the shorter durations of convertible bonds, perpetual preferred stock serves as an indefinite source of capital for MicroStrategy. This could make the company less vulnerable to market fluctuations and offer greater flexibility in the long run.
Why Perpetual Preferred Stock?
The decision to use perpetual preferred stock is part of MicroStrategy’s ongoing efforts to finance its bitcoin acquisition strategy. Michael Saylor, MicroStrategy’s executive chairman, emphasized the advantages of perpetual preferreds during a recent investor meeting at the ICR conference in Orlando. Unlike convertible bonds, which have a set tenor of 4-8 years, perpetual preferreds offer a longer-term solution with no mandatory redemption date. This makes it a more stable and advantageous instrument for raising capital.
Saylor also pointed out that perpetual preferred stock could function as an embedded call option, providing the company with a longer capital horizon while ensuring that it maintains flexibility.
Potential Market Appeal of Perpetual Preferreds
The perpetual preferred stock offering is expected to appeal to institutional investors such as pension funds and banks, who value stable, fixed dividend payments. According to Benchmark, the perpetual preferred stock could offer a mid-single-digit yield, with low volatility and no-options market, making it an attractive option compared to more traditional offerings such as convertible bonds.
Though the full terms of the offering have yet to be announced, the company indicated that it would likely include provisions for dividend payments, convertibility to Class A common stock, and the potential for the company to redeem the shares after a certain date.
The Role of Bitcoin in MicroStrategy’s Strategy
MicroStrategy has been aggressive in its pursuit of bitcoin, acquiring an additional 2,530 BTC recently, bringing its total bitcoin holdings to 450,000 BTC. This large bitcoin treasury has become a key part of the company’s business strategy, with the company seeking new and creative ways to fund further acquisitions.
By raising capital through perpetual preferred stock, MicroStrategy aims to secure the necessary funding to continue its bitcoin purchasing spree without putting additional pressure on its balance sheet. The offering provides the company with a sustainable way to raise funds while keeping its core bitcoin investment strategy intact.
Upcoming Shareholder Meeting and Earnings Call
Investors will have a chance to weigh in on the company’s strategy during a Special Meeting for Shareholders on January 21, 2025. At this meeting, shareholders will vote on increasing the authorized amount of Class A common stock and preferred stock, both of which are integral to MicroStrategy’s capital structure.
Additionally, MicroStrategy’s Q4 earnings call is scheduled for February 4, 2025, where investors can expect more insights into the company’s performance, its bitcoin holdings, and the impact of the new perpetual preferred stock offering.
Conclusion
MicroStrategy’s move to raise $2 billion through perpetual preferred stock is a bold step in its ongoing strategy to accumulate bitcoin and strengthen its capital structure. This offering could attract large institutional investors and provide MicroStrategy with long-term financial stability, allowing the company to continue its aggressive bitcoin acquisition strategy. As the terms of the offering become clearer and the Special Meeting for Shareholders approaches, the market will closely watch how this strategy unfolds and its potential impact on MicroStrategy’s growth.
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