Saylor’s New $4.2 Billion Bitcoin Plan Aims to Reassure Skeptics

Cryptocurrency

Stocks

Summary:

To reassure shareholders, Strategy pledged it won´t issue new common shares at less than 2.5 times its net asset value, except to cover debt interest or preferred dividends.

Michael Saylor isn’t backing down. The Strategy co-founder is preparing to sell $4.2 billion more in preferred stock to fuel his latest Bitcoin bet — while throwing a lifeline to investors worried he’s diluting them into oblivion.

The plan, unveiled with second-quarter earnings on Thursday, is Saylor’s latest answer to the big question hanging over his stock: how long can he keep using a lofty premium to fund ever-larger Bitcoin buys?

To reassure shareholders, Strategy pledged it won’t issue new common shares at less than 2.5 times its net asset value, except to cover debt interest or preferred dividends. At the same time, Saylor will keep tapping the market “opportunistically” when the premium is high, turning equity sales into fresh Bitcoin buys.

The move does two things at once: it locks in a floor aimed at reassuring any skeptical shareholders and arms the company with a larger war chest to keep buying Bitcoin. It’s a double play that pits Saylor directly against hedge fund managers like Jim Chanos, who have been betting the company’s premium will collapse.

“That would put common shareholders who are concerned about potential dilution at ease,” said Brian Dobson, managing director for Disruptive Technology Equity Research at the brokerage firm Clear Street. “The market is reacting positively to Strategy’s equity products. The demand is there as evidenced by their substantial capital raises.”

It’s the latest in a string of financial maneuvers that have transformed a once-obscure software firm into a leveraged Bitcoin proxy.

The dual move showcases Saylor’s mastery of capital markets during these bullish digital-asset times: using a self-imposed floor to placate critics, while simultaneously arming the company with fresh ammunition to keep buying Bitcoin.

The company - which is known formally as MicroStrategy Inc. — has already raised more than $10 billion this year through stock and structured offerings, feeding a balance sheet now holding $74 billion in Bitcoin. Its stock has surged 3,300% since Saylor’s first crypto purchase, outpacing Bitcoin itself and forcing hedge funds into a high-stakes battle over whether his premium-fueled strategy can last.

Since Strategy’s first Bitcoin purchase in 2020, Saylor has sold equity, issued various types of debt and layered stacks of preferred shares on top. In the process, he has encouraged a fleet of imitators and spurred a new industry of public companies following a so-called treasury strategy dedicated to buying and holding cryptocurrencies.

Good Times

Since Strategy trades so far above the value of its Bitcoin, the company can sell stock at rich levels, buy more Bitcoin, and in turn reinforce that premium. It’s a reflexive loop that critics warn would snap if sentiment shifts. For now, Saylor’s ability to turn equity markets into a Bitcoin funding engine has made his firm both a proxy for the cryptocurrency and a pressure point for critics betting the spread will collapse.

The company reiterated that it registered an unrealized gain of about $14 billion in the second quarter. After factoring in deferred taxes, the Bitcoin treasury company had net income of $10 billion, or $32.60 a share, the firm said in a statement. The eye-catching benefit, first disclosed at the start of the month, was due to a rebound in Bitcoin’s price and a recent accounting change.

Demand for offerings can fluctuate depending on Bitcoin prices. The firm had to sweeten one of its earlier preferred stock offerings this year with a steep discount to win over price‑sensitive buyers.

Just last week the company launched a new kind of preferred stock, dubbed Stretch, that was upsized from $500 million to more than $2 billion. It was yet another move that showed how deftly Saylor can turn financial engineering into crypto firepower. For now at least.

“Strategy’s upsize is a huge reflection on the market demand for its Stretch Preferred Stock offering,” said Tyler Evans, co-founder and chief investment officer of UTXO Management. “They have had similar upsizes from previous preferred stock offerings, but this one is an eye-popping number.”

Source: Bloomberg

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