MicroStrategy Announces Pricing of Offering of Convertible Senior Notes

Rhea-AI Summary

MicroStrategy Incorporated (MSTR) announced the pricing of $525 million convertible senior notes due 2031, upsized from $500 million. The notes will bear interest at 0.875% per annum, with an option for additional $78.75 million. The offering is expected to close on March 18, 2024. MicroStrategy intends to use the net proceeds to acquire additional bitcoin and for general corporate purposes.

Financial Analyst

The recent announcement by MicroStrategy to issue $525 million in convertible senior notes is a strategic financial move that signals the company's intention to raise capital for further investments, specifically in bitcoin. The upsized offering from the initially stated $500 million suggests a robust demand from qualified institutional buyers, reflecting investor confidence in the company's prospects or in the potential upside of its investment in bitcoin.

Convertible notes are a type of debt that investors can convert into equity at a later date, under specific conditions. The relatively low interest rate of 0.875% per annum indicates that MicroStrategy is taking advantage of the current interest rate environment to obtain inexpensive financing. However, the conversion premium of approximately 40% over the recent weighted average price of MicroStrategy's class A common stock underscores the potential dilution that current shareholders might face if the conversion occurs.

The decision to allocate a significant portion of the proceeds to bitcoin acquisitions is noteworthy. It underscores MicroStrategy's commitment to its strategy of investing in digital assets, a move that could have a profound impact on the company's risk profile and balance sheet. This strategy could lead to increased volatility in the company's stock, as the value of its bitcoin holdings will be subject to the fluctuations of the cryptocurrency market.

Market Research Analyst

MicroStrategy's decision to use the proceeds from the note offering to invest in bitcoin is indicative of the company's broader strategy to align itself with the cryptocurrency market. This move could be interpreted as a bold bet on the future of digital currencies, which may attract a certain segment of investors interested in gaining exposure to bitcoin through a publicly traded company.

However, it's important to consider the broader market implications of such a strategy. The cryptocurrency market is known for its high volatility, which could introduce additional risk to MicroStrategy's financial performance. Moreover, the company's increasing focus on bitcoin may impact its core business operations and could be a point of concern for investors who are more interested in the company's traditional business analytics software offerings.

The fact that the notes are being offered through a private placement to qualified institutional buyers and are not registered under the Securities Act suggests a targeted approach to raising funds, which may exclude smaller investors and could potentially concentrate ownership among larger institutional entities.

Cryptocurrency Analyst

MicroStrategy's continued investment in bitcoin is a significant development within the cryptocurrency space, as it represents one of the largest and most public endorsements of bitcoin by a NASDAQ-listed company. The company's aggressive acquisition strategy may influence the perception of bitcoin's legitimacy and stability as an investment asset, potentially affecting the cryptocurrency market.

However, this strategy also exposes the company to the regulatory and market risks associated with cryptocurrency investments. The lack of regulatory clarity in some jurisdictions, potential for increased scrutiny from financial regulators and the inherent price volatility of cryptocurrencies are factors that could impact MicroStrategy's financial stability. The company's ability to navigate these risks while maintaining a balance with its core business operations will be critical for its long-term success.

Furthermore, the conversion feature of the notes ties the company's stock performance directly to the cryptocurrency market, which could lead to a complex dynamic between the company's stock price, bitcoin price movements and investor sentiment.

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy^® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced the pricing of its offering of $525 million aggregate principal amount of 0.875% convertible senior notes due 2031 (the “notes”). The notes will be 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”). MicroStrategy also granted to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $78.75 million aggregate principal amount of the notes. The offering was upsized from the previously announced offering of $500 million aggregate principal amount of notes. The offering is expected to close on March 18, 2024, subject to satisfaction of customary closing conditions.

The notes will be unsecured, senior obligations of MicroStrategy, and will bear interest at a rate of 0.875% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2024. The notes will mature on March 15, 2031, unless earlier repurchased, redeemed or converted in accordance with their terms. Subject to certain conditions, on or after March 22, 2028, 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 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 September 15, 2028 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 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 September 15, 2030, 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 0.4297 shares of MicroStrategy class A common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $2,327.21 per share. The initial conversion price of the notes represents a premium of approximately 40% 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, March 14, 2024, which was $1662.1999. The conversion rate will be subject to adjustment upon the occurrence of certain events.

MicroStrategy estimates that the net proceeds from the sale of the notes will be approximately $515.0 million (or approximately $592.3 million if the initial purchasers exercise in full their option to purchase additional notes), 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 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 the United States absent registration or an applicable exemption from such registration requirements. The offering of the notes is being 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, 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 15, 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/20240315973366/en/

MicroStrategy Incorporated

Shirish Jajodia

Investor Relations

ir@microstrategy.com

Source: MicroStrategy

FAQ

What is the principal amount of the convertible senior notes announced by MicroStrategy (MSTR)?

MicroStrategy announced the pricing of $525 million aggregate principal amount of 0.875% convertible senior notes due 2031.

When is the expected closing date for the offering of the notes by MicroStrategy (MSTR)?

The offering is expected to close on March 18, 2024, subject to satisfaction of customary closing conditions.

What will be the interest rate on the notes issued by MicroStrategy (MSTR)?

The notes will bear interest at a rate of 0.875% per annum, payable semi-annually in arrears.

How much will the initial conversion price of the notes be per share of MicroStrategy's class A common stock?

The initial conversion price of the notes will be approximately $2,327.21 per share, representing a premium of approximately 40% over the U.S. composite volume weighted average price.

What does MicroStrategy (MSTR) intend to do with the net proceeds from the sale of the notes?

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