MicroStrategy Offers Preferred Stock to Raise Capital, Minimize Dilution

MicroStrategy, a leading business intelligence company, has announced a new preferred stock offering, aiming to raise capital while minimizing dilution and providing fixed dividends to investors. The company plans to sell 2.5 million preferred shares at $100 each, generating an initial $250 million in funding.

The preferred shares can be converted into 1/10th of a Class A common share, with an effective conversion price of $1,000 per common share. Investors holding these shares will receive an 8% annual dividend, calculated based on the liquidation value, paid quarterly. The dividend remains fixed, regardless of stock price fluctuations, and can be paid in cash from profits, common stock, or a combination of both. If dividends are not paid on time, they accumulate and must be paid later.

The preferred shares have no maturity date, allowing investors to hold them indefinitely. 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.

By issuing preferred stock, MicroStrategy can 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, helping 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: selling common stock at market prices or issuing 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