2025-01-30 19:16:57 by coinpaprika

By Jakub Lazurek 30 Jan 2025 (5 days ago) 2 min readMicroStrategy launches Preferred Stock ($STRK), raising capital at a premium, offering fixed 8% dividends, and delaying dilution for long-term growth.MicroStrategy ($MSTR) is launching Preferred Stock ($STRK) as a new way to raise capital. The company plans to sell 2.5 million Preferred Shares at $100 each, bringing in an initial $250 million. Each of these shares can be converted into 1/10th of a Class A Common Share, which means an effective conversion price of $1,000 per Common Share ($100 ÷ 1/10 = $1,000). Investors holding these shares will receive an 8% dividend per year, calculated based on the liquidation value. This means that if someone owns one Preferred Share worth $100, they will earn $8 annually. These payments are distributed quarterly, so each investor gets $2 every three months. The dividend remains fixed, no matter how the stock price changes. MicroStrategy has three options to pay these dividends: in cash from profits, by issuing Common Stock instead of cash, or using a combination of both. If the company does not pay dividends on time, they accumulate and must be paid later. These shares have no maturity date, meaning investors can hold them indefinitely. Unlike bonds, they never expire. MicroStrategy cannot force conversion unless the total outstanding Preferred Stock drops below $62.5 million, which is 25% of the original issue. There is no option for early redemption unless tax laws change in a way that affects the structure. This method allows MicroStrategy to raise capital at a 196.4% premium over the current stock price. If the Common Stock is trading at $337.40 and the Preferred Stock converts at $1,000, the company effectively raises funds at a much higher price, which is an advantage. Instead of selling Common Stock directly, MicroStrategy can use this strategy to raise money more efficiently. For example, if the company needs $2 billion, issuing Common Stock at $450 per share would require 4.44 million new shares. However, using Preferred Stock priced at $115 per share, the company would issue 17.39 million Preferred Shares, which convert into 1.73 million Common Shares. This reduces Common Stock issuance by 2.7 million shares, which helps to minimize dilution. If MicroStrategy’s stock price increases over time, this approach could delay dilution for 8 to 16 years. MicroStrategy now has two capital-raising tools. It can sell Common Stock at market prices or issue Preferred Stock, which raises funds more efficiently while delaying dilution. If this structure is successful, it could even replace convertible bonds as a preferred investment option. The company gains more control over how it raises money, while investors benefit from fixed dividends and the ability to convert their shares if they choose. If Bitcoin and MicroStrategy’s stock appreciate, this could prove to be a more effective strategy than traditional fundraising methods. Go back to All News