MicroStrategy Completes $800 Million Offering of 0.625% Convertible Senior Notes Due 2030

Rhea-AI Summary

MicroStrategy completed a $800 million offering of 0.625% convertible senior notes due 2030, with a conversion rate of 0.6677 shares of class A common stock per $1,000 principal amount of notes. The net proceeds of approximately $782.0 million were used to acquire additional bitcoin.

Financial Analyst

The completion of MicroStrategy's offering of convertible senior notes is a significant financial event that warrants close scrutiny from a financial perspective. The issuance of $800 million in notes, especially with the inclusion of an additional $100 million from the exercise of an over-allotment option, indicates a substantial capital raise for the company. The decision to use the net proceeds of approximately $782 million to acquire additional bitcoin is a strategic move that aligns with MicroStrategy's recent investment strategy but also adds a layer of risk due to the volatile nature of cryptocurrency markets.

From an investor's standpoint, the interest rate of 0.625% is relatively low, reflecting the current low-interest environment and possibly the company's creditworthiness. However, the conversion premium of 42.5% over the last reported sale price of MicroStrategy's class A common stock suggests confidence in the company's future stock performance, albeit it sets a high bar for conversion to be beneficial for note holders. The potential for redemption starting in 2027 provides MicroStrategy with flexibility, while the conversion features offer investors an opportunity to participate in the equity upside.

It is also noteworthy that the offering was conducted under Rule 144A, targeting qualified institutional buyers and bypassing the need for a public offering. This could indicate a strategic approach to engage with sophisticated investors who may be more aligned with the company's aggressive investment strategy and understanding of the associated risks.

Market Research Analyst

The impact of MicroStrategy's note offering on the broader market and its sector can be multifaceted. Firstly, the aggressive investment in bitcoin signals a continued bullish stance on cryptocurrency by a major public company, which could influence market sentiment regarding digital assets. MicroStrategy's actions may lead to increased institutional interest in cryptocurrencies, potentially affecting the demand and pricing dynamics in the crypto market.

Secondly, the offering's success, indicated by the full exercise of the over-allotment option, might inspire other companies to consider similar financing structures to raise capital, especially if they are looking to invest in high-growth but volatile assets like bitcoin. This could lead to a trend where more companies issue convertible notes with the intent to invest in digital assets, thereby creating a new niche in the corporate bond market.

Lastly, the high conversion premium suggests that MicroStrategy is optimistic about its stock performance, which could be a signal to the market about its future prospects. However, investors and analysts will likely monitor the company's stock price closely, given that the conversion price is significantly above the current trading price. This could lead to increased volatility in MicroStrategy's stock as the market digests the implications of the note offering and its potential dilutive effect upon conversion.

Cryptocurrency Expert

MicroStrategy's decision to further invest in bitcoin with the proceeds from the note offering is a move that solidifies its position as one of the leading public company investors in the cryptocurrency space. The use of traditional financial instruments to invest in digital assets is a notable development in the intersection of corporate finance and cryptocurrency markets. It reflects a growing acceptance of digital assets as a legitimate investment class among institutional investors.

The company's strategy to acquire more bitcoin could be seen as a long-term bet on the cryptocurrency's value appreciation. However, it also exposes the company to considerable market risk, as bitcoin prices are notoriously volatile and unpredictable. This risk is transferred to the note holders to some extent, as the value of their potential equity conversion is directly tied to the performance of MicroStrategy's investment in bitcoin.

Furthermore, the conversion terms and the high conversion premium highlight the speculative nature of this investment. Should the price of bitcoin experience significant fluctuations, it could have a profound impact on both the company's balance sheet and the intrinsic value of the convertible notes. This makes the offering a complex investment vehicle that combines elements of fixed income securities with the speculative characteristics of cryptocurrency investments.

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy^® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced that, on March 8, 2024, it completed its previously announced offering of 0.625% convertible senior notes due 2030 (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 are first issued, which the initial purchasers exercised in full on March 6, 2024 and which additional purchase was also completed on March 8, 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 0.625% 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, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms. Subject to certain conditions, on or after March 22, 2027, 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 $90 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 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 September 15, 2029, 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 0.6677 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 $1,497.68 per share. This represents a premium of approximately 42.5% over the last reported sale price of $1,051.01 per share of MicroStrategy’s class A common stock on the Nasdaq Global Select Market on March 5, 2024. The conversion rate is subject to adjustment upon the occurrence of certain events.

The net proceeds from the sale of the notes were approximately $782.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by MicroStrategy.

MicroStrategy used the net proceeds from the sale of the notes to acquire additional bitcoin.

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 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/20240311901408/en/

MicroStrategy Incorporated

Shirish Jajodia

Investor Relations

ir@microstrategy.com

Source: MicroStrategy

FAQ

What was the principal amount of the notes sold in the offering?

The aggregate principal amount of the notes sold in the offering was $800 million.

What is the conversion rate for the notes?

The conversion rate for the notes is initially 0.6677 shares of MicroStrategy’s class A common stock per $1,000 principal amount of notes.

How were the net proceeds from the sale of the notes utilized?

MicroStrategy used the net proceeds from the sale of the notes to acquire additional bitcoin.

When will the notes mature?

The notes will mature on March 15, 2030, unless earlier repurchased, redeemed, or converted in accordance with their terms.

What was the premium percentage over the last reported sale price of MicroStrategy’s class A common stock?

The initial conversion price of approximately $1,497.68 per share represented a premium of approximately 42.5% over the last reported sale price of $1,051.01 per share on March 5, 2024.