MicroStrategy Completes $800 Million Offering of 2.25% Convertible Senior Notes Due 2032

Rhea-AI Summary

MicroStrategy has successfully completed an $800 million offering of 2.25% convertible senior notes due 2032. The notes, sold to qualified institutional buyers, bear interest at 2.25% per annum and mature on June 15, 2032. The initial purchasers exercised their option to purchase an additional $100 million in notes, making the total principal amount $800 million. The conversion rate is set at 0.4894 shares per $1,000, with a conversion price of $2,043.32 per share, a 35% premium over the recent average stock price. Net proceeds of $786 million will be used to acquire more bitcoin and for general corporate purposes.

Positive

• Successful completion of $800 million offering.
• Interest rate of 2.25% per annum.
• Total net proceeds of $786 million.
• High initial conversion price of $2,043.32 per share, representing a 35% premium.

Negative

• Convertible notes are unsecured senior obligations.
• Potential dilution for shareholders if notes are converted into common stock.
• Long maturity period until June 15, 2032.
• Primary use of proceeds is to acquire more bitcoin, which may be seen as risky by some investors.

Insights

Financial Analyst

MicroStrategy’s completion of an $800 million convertible senior notes offering is a significant event for the company and its investors. Convertible senior notes are essentially bonds that can be converted into company stock, offering a hybrid between debt and equity. The interest rate of 2.25% is relatively low, suggesting that investors have confidence in the company's stability. This is particularly relevant given MicroStrategy's strong association with Bitcoin investments.

The notes’ conversion price is set at approximately $2,043.32 per share, which is a 35% premium over the recent average trading price. This high premium indicates investor optimism about future stock price appreciation. However, investors should be aware that if the stock does not perform as expected, the potential conversion might not be as financially beneficial.

Moreover, the company plans to use most of the proceeds to acquire additional Bitcoin. This strategy could amplify the company’s exposure to the volatile cryptocurrency market. While this could lead to high returns if Bitcoin appreciates, it also increases the risk profile of MicroStrategy's financials. Retail investors should consider this heightened risk when evaluating their investment in the company.

Another point to note is the potential for stock dilution due to the convertible nature of these notes. If many of these notes are converted into shares, it could lead to a dilution of existing shareholders' equity. This would be particularly impactful if the company's stock does not perform well in the future.

Crypto Market Analyst

MicroStrategy's clear intent to use the net proceeds from the convertible notes offering to acquire more Bitcoin is a bold strategy. This reinforces the company's image as a major institutional investor in the cryptocurrency market, which can lead to both positive and negative consequences.

The acquisition of additional Bitcoin could drive up the company’s value if Bitcoin prices increase, offering potentially high returns to shareholders who believe in the long-term appreciation of cryptocurrencies. On the other hand, the inherent volatility of Bitcoin means that a downturn could significantly impact MicroStrategy’s financial health, making this a high-risk, high-reward scenario.

Investors should also note the broader market sentiment towards cryptocurrencies, which tends to fluctuate widely based on regulatory news, market adoption and technological advancements. While a bullish Bitcoin outlook could greatly benefit MicroStrategy, any negative developments could adversely affect the company's stock price.

Legal Expert

The convertible senior notes offering, conducted under Rule 144A of the Securities Act, is an important legal detail. Rule 144A allows for the sale of securities to qualified institutional buyers without the need for extensive registration requirements. This expedites the offering process but limits the notes’ availability to retail investors.

Given that the notes are sold in a private offering, retail investors should be aware that they may not have direct access to these investment opportunities. The conversion features and repurchase options tied to corporate events add layers of conditions that could affect the notes' value.

Additionally, the ability to redeem the notes after 2029 and the requirement to repurchase them upon certain events could affect their market liquidity and price stability. These provisions are designed to protect noteholders but also add complexity to their valuation.

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy^® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced that, on June 18, 2024, it completed its previously announced offering of 2.25% convertible senior notes due 2032 (the “notes”). The aggregate principal amount of the notes sold in the offering was $800 million, which includes $100 million aggregate principal amount of notes issued pursuant to an option to purchase, within a 13-day period beginning on, and including, the date on which the notes were first issued, granted to the initial purchasers under the purchase agreement, which the initial purchasers exercised in full on June 17, 2024 and which additional purchase was completed on June 18, 2024. The notes were sold in a private offering to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

The notes are unsecured, senior obligations of MicroStrategy, and bear interest at a rate of 2.25% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2024. The notes will mature on June 15, 2032, unless earlier repurchased, redeemed or converted in accordance with their terms. Subject to certain conditions, on or after June 20, 2029, MicroStrategy may redeem for cash all or any portion of the notes at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the last reported sale price of MicroStrategy’s class A common stock has been at least 130% of the conversion price then in effect for a specified period of time ending on the trading day immediately before the date the notice of redemption is sent. If MicroStrategy redeems fewer than all the outstanding notes, at least $75 million aggregate principal amount of notes must be outstanding and not subject to redemption as of the relevant redemption notice date.

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 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if MicroStrategy calls any note for redemption, it will, under certain circumstances, be required to increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or notice of redemption.

The notes are 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 are 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 is initially 0.4894 shares of MicroStrategy’s class A common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $2,043.32 per share. This represents a premium of approximately 35% over the U.S. composite volume weighted average price of MicroStrategy’s class A common stock from 9:30 a.m. through 4:00 p.m. Eastern Daylight Time on Thursday, June 13, 2024, which was $1,513.46. The conversion rate is subject to adjustment upon the occurrence of certain events.

The net proceeds from the sale of the notes were approximately $786.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by MicroStrategy.

MicroStrategy intends to use the net proceeds from the sale of the notes to acquire additional bitcoin and for general corporate purposes.

The notes were 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 the United States absent registration or an applicable exemption from such registration requirements. The offering of the notes was made only by means of a private offering memorandum.

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 the United States and certain other countries.

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 and the anticipated use of such net proceeds. 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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240620054181/en/

MicroStrategy Incorporated

Shirish Jajodia

Investor Relations

ir@microstrategy.com

Source: MicroStrategy Incorporated

FAQ

What is the interest rate on MicroStrategy's 2.25% convertible senior notes?

The interest rate is 2.25% per annum.

When do MicroStrategy's convertible senior notes mature?

The notes mature on June 15, 2032.

How much did MicroStrategy raise in its recent offering of convertible senior notes?

MicroStrategy raised $800 million in the offering.

What is the conversion rate for MicroStrategy's convertible senior notes?

The conversion rate is 0.4894 shares per $1,000 principal amount of notes.

What will MicroStrategy use the net proceeds from the note offering for?

MicroStrategy plans to use the net proceeds to acquire additional bitcoin and for general corporate purposes.