Unlock Editor's Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
The author is the former Global Head of Equity Capital Markets at Bank of America and currently a Managing Director at Seda Expert.
Has there ever been a capital markets spectacle like MicroStrategy? Last month alone, the Bitcoin buying giant raised a staggering $42 billion in equity and debt while purchasing $10.2 billion worth of Bitcoin. announced plans to procure
In addition, this month the company completed its fifth convertible bond issue this year, this time raising $3 billion with zero interest and an eye-watering 55% debt-to-equity conversion clause. Premium to current stock price.
Technical reasons may partly explain this, with traders looking to take advantage of the volatility of the underlying stock. But in reality, people are lending money to MicroStrategy for free in the hope that the stock price will rise above the conversion price. This is despite the fact that they can buy stocks from the market. Even if things sound like things are getting out of hand, the company's shareholders aren't showing much alarm just yet. The company's stock has risen more than 450% this year, and its market capitalization has soared to $90 billion. Not too bad for a company whose traditional software business is draining cash and shrinking every quarter.
But MicroStrategy is much more than a software company these days. It can best be described as an insatiable buyer of Bitcoin. MicroStrategy is currently the largest corporate holder of Bitcoin, owning nearly 2% of Bitcoin, and shows no signs of stopping.
The $42 billion raise, half through stock sales and half through debt over three years, is part of MicroStrategy's 21/21 Plan announced last month. CEO Von Leh said the plan's name pays homage to The Hitchhiker's Guide to the Galaxy (the 42 is the answer to life's ultimate questions) and Bitcoin's 21 million coin limit. . This description perfectly encapsulates MicroStrategy's combination of geeky arrogance and financial heresy.
Some content could not be loaded. Please check your internet connection or browser settings.
It all represents an extraordinary comeback. A quarter-century ago, MicroStrategy was the embodiment of the dot-com bubble, with Super Bowl ads, stratospheric stock prices, and co-founder Michael Saylor's assertion that: It's such an important feature that there would be riots if it stopped working. ” Then, in March 2000, reality hit. MicroStrategy restated its financial results, its stock price plummeted from $333 to a final $0.42, and the Securities and Exchange Commission came knocking. Mr. Saylor and two colleagues subsequently settled a lawsuit from the SEC that involved hefty fines and disgorgement. The men have not admitted the charges.
Since adopting Bitcoin in August 2020, the stock price has soared approximately 28 times. Depending on who you ask on Wall Street, Saylor has either discovered an El Dorado of shareholder value or masterfully constructed a structure destined to collapse spectacularly once again.
The company's strategy is simple. MicroStrategy sells stock and convertible bonds to buy Bitcoin. This purchase supports the price of Bitcoin and drives up MicroStrategy's stock price. MicroStrategy then sells more stocks and convertible bonds at higher prices to buy more Bitcoin. Wash, rinse, repeat.
Some content could not be loaded. Please check your internet connection or browser settings.
The company's current market capitalization is $89 billion, while its 386,700 Bitcoin reserves are worth $37 billion. The company will continue to raise funds to purchase more Bitcoin. That's because as long as the stock trades at a premium to its net asset value, there's plenty of reward for doing so. This strategy differs from other companies such as Tesla and Block, which park some of their surplus funds from their operations in Bitcoin. Michael Saylor goes where Elon Musk never dared to go.
Recommended
Skeptics say the whole business reeks of a scheme in which early investors profit while new investors drive up stock prices. The plan rests on two pillars: rising Bitcoin prices and investors' continued desire to buy MicroStrategy stock. If either of them wobbles, the entire building can collapse, leaving the company with maturing debt and no escape.
Then there's the legal tightrope. First, if regulators classify Bitcoin as a security, MicroStrategy will be caught in the thicket of strict U.S. “investment company” rules. Fortunately for Saylor, the SEC declared Bitcoin the only exception to the position that digital assets are securities. Second, U.S. rules frown on corporate executives making speculative predictions about stock prices. However, Saylor has publicly predicted that Bitcoin will soar to $13 million by 2045. If that happens, the value of MicroStrategy's current stash of Bitcoins would be an astonishing $4.3 trillion.
For now, MicroStrategy's speculative frenzy has both captivated and ruthless Wall Street. Once again Thaler produced one of the wildest acts in capital markets.
