MicroStrategy, a self-proclaimed Bitcoin development company, announced that it will issue perpetual preferred stock STRK to further strengthen its balance sheet and acquire more Bitcoin. In addition, MicroStrategy spent about $1.1 billion to acquire 10,107 Bitcoins at an average price of $105,596.
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ToggleMicroStrategy's Perpetual Preferred Stock STRK
MicroStrategy has applied for the stock ticker "STRK" for its perpetual preferred stock, with a total of 2.5 million shares. According to the press release, the funds raised from this issuance will be used to further strengthen MicroStrategy's balance sheet and acquire more Bitcoins. The features of the perpetual preferred stock are as follows:
- Have a liquidation preference of $100 per share
- Convertible into Class A common stock under certain conditions
- Quarterly cash dividend payments (end of March, June, September, December)
- Redeemable by MicroStrategy or the holders under certain conditions
- No voting rights
What is the difference between preferred stock, common stock, and convertible bonds?
Preferred stock and common stock both belong to shareholders' equity, while convertible bonds belong to bonds. So the order of priority in the event of company liquidation is: convertible bonds > preferred stock > common stock.
ABMedia has compared these three different products in the chart below.
Why choose "perpetual preferred stock"?
The feature of perpetual preferred stock is that they usually have no voting rights and will not have a significant impact on the company's governance. After all, the temporary shareholder meeting plan it just passed will increase MicroStrategy's share capital from the original 500 million shares to 11.5 billion shares, an increase of 2,200%.
But for investors, buying preferred stock relatively enjoys a fixed dividend distribution, and in the event of company liquidation, preferred shareholders will receive asset distribution before common shareholders. Like MicroStrategy, which does not pay dividends, the convertible bonds it has issued recently also do not pay dividends, so perpetual preferred stock seems to be a good choice for those seeking stable income.
By turning to perpetual preferred stock, MicroStrategy can attract institutional investors such as insurance companies, pension funds, and banks. These entities usually favor assets with fixed dividend payments and relatively low volatility. Unlike bonds, perpetual preferred stock has no maturity date or mandatory redemption schedule, but rather pays a fixed dividend indefinitely as long as the issuing company remains in operation.
MicroStrategy has not yet announced the dividend rate for this preferred stock, and although it has the stock ticker "STRK", it has not yet officially listed. Perhaps in the future, retail investors will also be able to buy and sell STRK in the open market through their US stock accounts.
Perpetual Preferred Stock Offers 1.5x BTC Exposure and Yield
Perpetual preferred stock essentially provides investors with a unique claim - an embedded perpetual call option on a company, and MicroStrategy is closely tied to the high volatility of Bit.
In the investor conference held by MicroStrategy (MicroStrategy) founder Michael Saylor in Orlando, he also stated that the perpetual preferred stock the company may issue will be the latest way to provide investors with leveraged exposure to Bit, with the goal of providing investors with "1.5 times the returns and volatility of Bit."
(Michael Saylor: MicroStrategy's Perpetual Preferred Stock Will Offer 1.5x Bit Exposure and Yield)
Risk Warning
Cryptocurrency investments are highly risky, their prices may fluctuate wildly, and you may lose your entire principal. Please carefully evaluate the risks.
