Strategy bets again on Bitcoin with a preferred stock issuance of 711 million USD

Strategy, previously known as MicroStrategy, has announced a new issuance of 8,500,000 preferred shares at a price of 85.00 USD per share, with the aim of raising approximately 711.2 million USD net. The funds will be primarily allocated to the acquisition of Bitcoin and working capital, confirming the company’s confidence in the growth potential of the cryptocurrency. But what are the details of this operation and what does it mean for investors and the market? Let’s find out.

Details of the issuance: price, dividends, and yield

The preferred shares issued by Strategy are perpetual and offer an annual dividend of 10%, calculated on a nominal value of 100 USD per share. This translates to 10 USD of annual dividend per share. However, since the selling price is set at 85 USD, the effective yield for investors reaches 11.76% (10 USD / 85 USD), an interesting return for those seeking stable income.

A surprising element is the liquidation preference of 100 USD per share, higher than the purchase price. In the event of the company’s liquidation, investors in preferred shares would receive this amount before common shareholders, adding a layer of security to the investment.

With the net proceeds of 711.2 million USD, Strategy plans to purchase approximately 8,082 Bitcoin, based on the current price of about 88,000 USD per BTC. This would bring its total reserves to over 479,000 BTC, consolidating its position as the largest corporate holder of Bitcoin in the world.

Strategy bets long-term on Bitcoin: strategy and risks

Strategy, led by the visionary Michael Saylor, is not new to these operations. As of December 31, 2024, the company already holds 471,107 BTC, valued at approximately 41.42 billion USD. This issuance is yet another step in its strategy to make Bitcoin the primary reserve asset, betting on a future appreciation that exceeds the cost of capital for the operation, estimated at around 11.95% per annum.

The calculation is simple: with 85 million USD in annual dividends (8,500,000 shares × 10 USD) on 711.2 million USD raised, the cost of capital is significant. To make this move profitable, Strategy expects Bitcoin to generate returns exceeding 12% annually, an ambitious but not impossible target, considering the volatility and historical trend of the cryptocurrency.

However, the risks are not lacking. If the price of Bitcoin (BTC) were to collapse, the company might find itself forced to sell part of its reserves to cover the dividends, putting pressure on both its finances and the value of the shares. Despite this, Strategy seems convinced that the future is on its side, with a target return of Bitcoin of 15% for 2025, as stated in the fourth quarter 2024 results.

Why preferred stocks? A comparison with ordinary ones

The issuance of preferred shares allows Strategy to raise capital without diluting the voting power of common shareholders, whose shares are traded at approximately 335.75 USD, for a market capitalization of 81.2 billion USD. This value exceeds that of Bitcoin reserves, suggesting that the market also attributes a premium to the company’s business software.

In the event of liquidation, the total preference of preferred shares (USD 850 million) is a fraction of the Bitcoin reserves, reducing the risk for common shareholders. For investors in the preferred shares, however, the mix of high yield and protection in liquidation makes the offer enticing.

Everyone Crazy for Bitcoin: Opportunities and Uncertainties for Strategy Investors

For those who purchase these preferred shares, the yield of 11.76% is a strong attraction, especially in a context of uncertain interest rates. But the success of the investment depends on Strategy’s ability to manage its financial obligations and the performance of Bitcoin. A prolonged decline in the cryptocurrency market could compromise the cash flows needed for dividends, even though the current Bitcoin reserves offer a significant cushion.

Conclusion: a bold move in a volatile market

The issuance of preferred shares by Strategy is a further demonstration of its unwavering faith in Bitcoin. With a high cost of capital and a strategy strongly tied to the cryptocurrency, the company positions itself as a pioneer – or a daredevil – in the financial landscape. For investors, the offering combines attractive yield and relative safety, but requires a risk tolerance linked to the volatility of Bitcoin.

Summary Table

Strategy is playing a high-risk, high-reward game. Time will tell if this bet on Bitcoin will turn out to be a stroke of genius or an expensive gamble.