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MicroStrategy to Issue $550 Million in Convertible Senior Notes to Buy Bitcoin

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by Daria Rud · 3 min read
MicroStrategy to Issue $550 Million in Convertible Senior Notes to Buy Bitcoin
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According to MicroStrategy, they expect the net proceeds from the sale to total $537.2 million. If the initial purchasers fully exercise their option to buy additional notes, this amount may be even higher, $634.9 million. 

Business intelligence company MicroStrategy Incorporated (NASDAQ: MSTR) has announced a $550 million securities offering. According to MicroStrategy, the proceeds will be invested in Bitcoin (BTC).

Initially, MicroStrategy was planning to issue $400 million of Convertible Senior Notes. However, yesterday, the company raised the bar. It is now targeting to sell $550 million of the debt instruments in a private offering to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

As for the pricing, the initial conversion rate for the notes will be 2.5126 shares of MicroStrategy class A common stock per $1,000 principal amount of notes. This is equivalent to an initial conversion price of $397.99 per share. Since the last reported sale price of $289.45 per share on December 8, the premium is about 37.5%.

The first payout will start on June 15, 2021. The notes will mature on December 15, 2025.

According to MicroStrategy, they expect the net proceeds from the sale to total $537.2 million. If the initial purchasers fully exercise their option to buy additional notes, this amount may be even higher, $634.9 million.

Interest of MicroStrategy in Bitcoin

MicroStrategy is planning to spend the funds raised on Bitcoin. Back in August, the company revealed they bought 21,454 BTC for $250 million and made BTC its primary reserve asset. A month later, MicroStrategy purchased another 16,796 BTC for $175 million. Both the investments were made through Coinbase’s OTC and brokerage platform.

On December 5, MicroStrategy CEO Michael Saylor said the firm had purchased a further 2,574 BTC priced at approximately $19,427 each for $50 million. Now, its total crypto holdings total about 40,824 BTC.

However, some analysts criticize MicroStrategy and call its attention to BTC hilarious. For example, Citibank analyst Tyler Radke downgraded MicroStrategy stock’s rating from “neutral” to “sell”, saying that the company’s focus on Bitcoin is a troubling trend that signals “incremental risk to the story.”

Radke said:

“MSTR’s bitcoin investment has returned $250M (or worth $26/share or +20% towards stock) since August ’20. While impressive, it pales in comparison to the 172% return in the stock. At the current stock price, our analysis suggests that the market is pricing in much more optimistic valuation scenarios for the core business and Bitcoin.”

He added:

“Recent insider selling has been significant and broad-based, and suggests shares may be overvalued. Much of the management team may not be as optimistic on bitcoin or fundamentals as chairman/CEO Saylor.”

Following Radke’s comments, MSTR stock fell. Yesterday, it closed 1.12% down, at $286.21 per share. After hours, it declined by another 0.77% to $284.01. Year-to-date, MicroStrategy shares are 100.67% up. Its marker cap totals $2.68 billion.

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