MicroStrategy Announces Pricing of Offering of Convertible Senior Notes
MicroStrategy (Nasdaq: MSTR) announced a $700 million offering of 2.25% convertible senior notes due 2032. The offer, initially set at $500 million, was increased, with an option for an additional $100 million purchase within 13 days of issuance. Notes are expected to close on June 17, 2024, with interest payable semi-annually. They mature on June 15, 2032, and are convertible to cash, shares, or a combination, based on conditions.
Conversion rate is 0.4894 shares per $1,000, equating to an initial price of $2,043.32, a 35% premium over the June 13, 2024 average price of $1,513.46. Estimated net proceeds of $687.8 million ($786.0 million if additional notes are sold) will be used for acquiring bitcoin and general purposes.
Notes are offered privately to qualified institutional buyers under Rule 144A and are not registered under the Securities Act. No public offer will be made.
- Upsized offering from $500 million to $700 million indicates strong demand.
- Potential for additional $100 million purchase by initial buyers.
- Interest rate of 2.25% is relatively low, benefiting the company.
- Net proceeds estimated at $687.8 million, or $786.0 million if options are exercised.
- Proceeds intended for acquiring bitcoin and general corporate use, possibly boosting digital asset holdings.
- 35% premium on initial conversion price signifies investor confidence.
- Convertible notes can lead to shareholder dilution if converted into equity.
- Obligations of $700 million plus potential $100 million add substantial debt.
- Notes are unsecured, posing higher risk to investors if the company faces financial difficulties.
- Long maturity date of 2032 means prolonged financial liability.
- Interest payments add to ongoing financial commitments.
- Dependence on bitcoin acquisition could introduce volatility linked to cryptocurrency markets.
Insights
MicroStrategy's announcement about the pricing and upsizing of its offering of $700 million in convertible senior notes has several implications for investors. Initially planned for $500 million, the upsized offering indicates increased demand and confidence from institutional buyers. Convertible notes allow investors to convert their debt into equity and with a 35% premium on the conversion price, investors are betting on MicroStrategy's stock appreciating significantly over the next few years.
This move is particularly interesting as MicroStrategy plans to use the proceeds to acquire additional bitcoin, continuing its strategy of leveraging bitcoin as a treasury reserve asset. This increases their exposure to bitcoin's volatility, which could result in significant gains or losses depending on the cryptocurrency's market movements. Retail investors should consider this risk when evaluating MicroStrategy's future financial stability.
The interest rate set at 2.25% per annum is relatively low, reflecting the low yield environment and the confidence in MicroStrategy's potential growth. For context, convertible notes are generally attractive in a low-interest-rate environment as they offer a blend of equity upside with debt security. However, investors need to be mindful of the dilution risk if these notes are converted into equity.
Short-term, the announcement might lead to a positive market reaction owing to increased liquidity. Long-term, it could hinge on bitcoin's performance and MicroStrategy's ability to manage its convertible debt and leverage effectively.
Overall, the financial analyst would rate this news as positive primarily due to the strong demand for the notes and the strategic use of proceeds, albeit with certain risks tied to bitcoin's market performance and future dilution potential.
MicroStrategy's decision to issue $700 million convertible senior notes and use the majority of the proceeds to purchase additional bitcoin is a bold strategy that aligns with its previous actions. Over the past few years, the company has significantly increased its bitcoin holdings, positioning itself as one of the leading institutional investors in the cryptocurrency space. This move is likely to be viewed favorably by the market due to the perceived strong demand for the notes, as evidenced by the upsizing from $500 million to $700 million.
It is important to note that bitcoin's price volatility introduces a significant risk element. Retail investors should be aware that while the potential for high returns exists, so does the possibility of substantial losses. The long-term success of this strategy will largely depend on the future performance of bitcoin. Historically, bitcoin has shown substantial price fluctuations, which means MicroStrategy's financial health could experience similar volatility.
Another point worth discussing is the conversion premium set at 35%. This high premium suggests that investors are willing to pay a significant premium for the potential to convert the debt into equity, reflecting strong confidence in MicroStrategy's stock price appreciation. However, this also means that the company's stock needs to perform exceptionally well to meet investor expectations.
In conclusion, while this strategic move aligns with MicroStrategy's existing investment thesis and shows confidence from institutional buyers, it is not without its risks. For retail investors, the key takeaway is the high-risk, high-reward nature of this investment strategy, heavily tied to the future performance of bitcoin.
The market research analyst rates this news as positive overall due to the strong demand and strategic deployment of proceeds, despite the associated risks.
The notes will be unsecured, senior obligations of MicroStrategy, and will bear interest at a rate of
Holders of notes may require MicroStrategy to repurchase their notes on June 15, 2029 or upon the occurrence of certain events that constitute a fundamental change under the indenture governing the notes at a repurchase price equal to
The notes will be convertible into cash, shares of MicroStrategy’s class A common stock, or a combination of cash and shares of MicroStrategy’s class A common stock, at MicroStrategy’s election. Prior to December 15, 2031, the notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date.
The conversion rate for the notes will initially be 0.4894 shares of MicroStrategy class A common stock per
MicroStrategy estimates that the net proceeds from the sale of the notes will be approximately
MicroStrategy intends to use the net proceeds from the sale of the notes to acquire additional bitcoin and for general corporate purposes.
The notes are being offered and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The offer and sale of the notes and the shares of MicroStrategy’s class A common stock issuable upon conversion of the notes, if any, have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction, and the notes and any such shares may not be offered or sold in
This press release shall not constitute an offer to sell, or a solicitation of an offer to buy the notes, nor shall there be any sale of, the notes in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of any such state or jurisdiction.
About MicroStrategy Incorporated
MicroStrategy (Nasdaq: MSTR) considers itself the world’s first Bitcoin development company. We are a publicly-traded operating company committed to the continued development of the bitcoin network through our activities in the financial markets, advocacy and technology innovation. As an operating business, we are able to use cashflows as well as proceeds from equity and debt financings to accumulate bitcoin, which serves as our primary treasury reserve asset. We also develop and provide industry-leading AI-powered enterprise analytics software that promotes our vision of Intelligence Everywhere, and are using our software development capabilities to develop bitcoin applications. We believe that the combination of our operating structure, bitcoin strategy and focus on technology innovation provides a unique opportunity for value creation.
MicroStrategy and Intelligence Everywhere are either trademarks or registered trademarks of MicroStrategy Incorporated in
Forward-Looking Statements
Statements in this press release about future expectations, plans, and prospects, as well as any other statements regarding matters that are not historical facts, may constitute “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements relating to the estimated net proceeds of the offering, the anticipated use of such net proceeds, and the anticipated closing date. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including the uncertainties related to market conditions and the completion of the offering on the anticipated terms or at all, the uncertainties related to the satisfaction of closing conditions for the sale of the notes, the other factors discussed in the “Risk Factors” section of MicroStrategy’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 1, 2024, and the risks described in other filings that MicroStrategy may make with the Securities and Exchange Commission. Any forward-looking statements contained in this press release speak only as of the date hereof, and MicroStrategy specifically disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
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MicroStrategy Incorporated
Shirish Jajodia
Investor Relations
ir@microstrategy.com
Source: MicroStrategy Incorporated
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