MicroStrategy Announces Offering of 5,000,000 Series A Perpetual Strike Preferred Stock for Bitcoin Purchases

Tags: microstrategy

Key Takeaways:

• MicroStrategy aims to accumulate more Bitcoin and is raising capital through a stock offering.
• The company will issue Series A Strike Perpetual Preferred Stock with a fixed dividend rate.
• This action underscores MicroStrategy’s strong conviction that Bitcoin is a primary asset.

MicroStrategy Incorporated (Nasdaq: MSTR), the largest independent publicly traded business intelligence company, today announced its intention to offer 5,000,000 shares of its Series A Perpetual Strike Preferred Stock in a public offering. The company remains dedicated to this Bitcoin-first investment approach, as demonstrated by this action to purchase additional amounts of the cryptocurrency.

Funding the Future: Why Bitcoin is Central to MicroStrategy’s Vision

The company plans to use the net proceeds from the stock sale for general corporate purposes, including the purchase of a large amount of Bitcoin. This decision reflects MicroStrategy’s view of Bitcoin as a long-term store of value.

The company’s commitment to Bitcoin has been a subject of discussion in the financial community. Some regard it as a daring move that can pay big dividends as long as Bitcoin prices remain high, potentially yielding substantial returns for investors, while others consider it a dangerous risk that could backfire in a downturn.

What’s in the Series A Perpetual Strike Preferred Stock?

This newly issued preferred stock will have several key features:

• Fixed Dividend Rate: The Perpetual Strike Preferred Stock will accumulate cumulative dividends at a fixed rate of 10.00% per annum on the stated amount.
• Payment of Dividends: Dividends shall be paid quarterly in arrears on each of March 31, June 30, September 30, and December 31 each year, starting June 30, 2025, in cash only.
• Compounded Dividends: Unpaid dividends will accrue and compound quarterly at a rate starting from 10% plus 100 basis points, increasing annually by 100 basis points until reaching a maximum of 18%.
• Redemption Rights: MicroStrategy has the right to redeem all outstanding preferred stock under certain conditions, including, but not limited to, if fewer than 25% of the initially issued shares remain outstanding or certain tax events occur.
• Fundamental Change Repurchase: Holders of the preferred stock have the right to request MicroStrategy to repurchase their shares in the event of a “fundamental change”.
• Liquidation Preference: The initial liquidation preference of $100 per share is adjusted based on the trading price of the preferred stock.

If an investor purchases 100 shares of the Series A Perpetual Strike Preferred Stock and the company continues to declare dividends, they would receive $1,000 annually, paid quarterly. Any missed dividend payments will accumulate as dividends in arrears, compounding at an increasing rate.

The Offering and Its Impact on MicroStrategy’s Stock Structure

In its capital structure, the company has Class A common stock, Class B common stock, and preferred stock. The Board of Directors has the ability, without further stockholder action, to issue up to 5,000,000 shares of “blank check” preferred stock. Such flexibility lets MicroStrategy be agile enough to adapt to expanding market conditions and take strategic opportunities as they come, such as quickly acquiring Bitcoin.

The issuance of preferred stock could impact takeover attempts by giving preferred shareholders additional rights, potentially complicating acquisitions or increasing their costs.

Expert Advice: Balancing the Risks and Benefits

MicroStrategy’s Bitcoin investment strategy has divided analysts. Some analysts argue that the company is well-poised to become a major winner as Bitcoin adoption grows. Michael Saylor, the Chairman, alluded to this when he suggested that Bitcoin would become the primary treasury reserve asset for corporations worldwide.

But other experts warn about linking a company’s fortunes so tightly to a volatile asset. “While Bitcoin has shown impressive growth, its price swings can be dramatic,” one financial analyst at a top investment bank said. “MicroStrategy’s stock is now inextricably linked to Bitcoin’s performance, which introduces a significant element of risk for investors.”

Delaware Corporate Law and Exclusive Forum Provision

This is important because MicroStrategy is a Delaware corporation and therefore, the Delaware General Corporation Law Section 203 (discussing business combinations with so-called “interested stockholders”) applies. In addition, under the By-laws, unless MicroStrategy agrees otherwise, the Court of Chancery of the State of Delaware shall serve as the exclusive forum for derivative actions or breaches of fiduciary duties.

This is a typical provision in many Delaware corporations to expedite legal proceedings and ensure a more consistent legal standard on various corporate governance matters.

Offering Details and How to Obtain Prospectus Information

Morgan Stanley & Co. LLC, Barclays Capital Inc., Citigroup Global Markets Inc., and Moelis & Company LLC are serving as joint book-running managers for the offering. The offering is being conducted as part of an effective shelf registration statement filed with the SEC. Potential investors may access an electronic version of the preliminary prospectus supplement and related prospectus on the SEC’s website.