MicroStrategy ($MSTR) is introducing Preferred Stock ($STRK) to raise capital. The company plans to sell 2.5 million Preferred Shares at $100 each, totaling $250 million. Each Preferred Share can be converted into 1/10th of a Class A Common Share, making the conversion price $1,000 per Common Share.
Investors will receive an 8% annual dividend based on the liquidation value. For a Preferred Share worth $100, this means an annual earning of $8, paid quarterly as $2 every three months.
The dividend is fixed and does not change with stock price fluctuations. MicroStrategy can pay these dividends in cash, by issuing Common Stock, or a mix of both. If dividends are not paid on time, they accumulate and must be paid later.
These Preferred Shares have no maturity date, allowing investors to hold them indefinitely. MicroStrategy cannot force conversion unless the total outstanding Preferred Stock falls below $62.5 million, which is 25% of the original issue. There is no early redemption option unless tax laws change.
This strategy allows MicroStrategy to raise capital at a 196.4% premium over the current stock price. If Common Stock is trading at $337.40, the company raises funds at a higher price through Preferred Stock. This method is more efficient than selling Common Stock directly. For instance, to raise $2 billion, issuing Common Stock at $450 would require 4.44 million shares. In contrast, using Preferred Stock at $115 would mean issuing 17.39 million shares, converting to 1.73 million Common Shares, reducing dilution by 2.7 million shares.
MicroStrategy now has two options for raising capital: selling Common Stock or issuing Preferred Stock. This new structure could replace convertible bonds as a preferred investment. It gives the company more control over fundraising, while investors benefit from fixed dividends and conversion options. If Bitcoin and MicroStrategy’s stock increase, this strategy may be more effective than traditional methods.
