By Andrew Bary
MicroStrategy's stock issuance spree could be a bonanza for the nine firms that are handling the equity sales.
The company, the largest corporate bitcoin holder, has taken advantage of its elevated stock price since the end of the third quarter to issue a large amount of equity and used the proceeds to buy bitcoin.
This is part of chairman and controlling shareholder Michael Saylor's strategy to build MicroStrategy's bitcoin holdings financed with equity and debt sales.
While MicroStrategy stock has stalled in the past week, it has gained about 500% this year, outpacing the advance in bitcoin, which has risen 125% to around $95,000. The shares now trade at around $383, valuing the company at $90 billion based on its most recent basic share count.
MicroStrategy has issued about $10.5 billion of equity since Oct. 31 with most of it sold under a $42 billion program unveiled in October that calls for selling $21 billion of stock and $21 billion of bonds over the next three years to fund new bitcoin purchases.
The stock is issued via "at-the-market" sales through the nine-member underwriting group, meaning the equity gets sold to investors at prices close to the market price of MicroStrategy stock.
Traditional underwritten stock deals, such as Boeing's big sale of $16 billion of equity in October, often get done at an appreciable discount to the market price to attract investors. Boeing's was sold at about a 5% discount.
MicroStrategy doesn't disclose what it pays the underwriters, only that the compensation to its sales agents will be "up to 2%" of the sales proceeds. At the full 2%, the $10.5 billion in recent sales would generate about $200 million in sales commissions for the nine firms: TD Securities, Barclays, Benchmark Company, BTIG, Canaccord Genuity, Cantor Fitzgerald & Co., Maxim Group, Mizuho Securities, and SG Americas Securities. It isn't clear how much stock each firm sells and how much in commissions that they receive.
"None of the Agents are required to sell any specific amount, but each will act as our sales agent using commercially reasonable efforts, consistent with its normal trading and sales practices, on mutually agreed terms between the Agents and us," the company said in a prospectus supplement in October.
The company disclosed Monday that from Nov. 25 to Dec. 1 it had purchased another $1.5 billion of bitcoin, financed with a like amount of equity sales.
The company now holds 402,100 bitcoin, or about 2% of the total outstanding. The company's bitcoin holdings have more than doubled this year from 189,150 on Dec. 31, and are up 60% in the current quarter, from 252,220 on Sept. 30.
More equity stock sales are expected under the program, which is orchestrated by Saylor.
The company has sold almost $10 billion under the $21 billion equity authorization. This puts it on pace to reach that $21 billion goal well before the end of 2027, the original target date laid out in October.
At the current rate of equity issuance, MicroStrategy could hit that $21 billion target during the first quarter of 2025.
Assuming the full $21 billion is sold, the underwriters could net $400 million in sales commissions.
The group is likely getting more fees from the company's plan to sell $21 billion of debt. MicroStrategy generally doesn't disclose much about the underwriters of its bond sales, but it did say that Barclays was one of several purchasers of its recent $3 billion convertible bond sale -- the largest traditional convertible bond deal of the year.
MicroStrategy paid a commission of about $30 million, or 1% of the sales proceeds, on that deal.
Saylor has unveiled this year a new financial measure created by the company called bitcoin yield, which measures the percentage increase in bitcoin holdings relative to the rise in its diluted shares outstanding. The goal is to boost bitcoin holdings faster than the share count.
Since the end of September, the company has succeeded as the total number of bitcoin held -- not the dollar amount -- is up about 60%, while the diluted shares outstanding are up 15% to about 270 million.
With MicroStrategy stock now valued at $90 billion, it trades for 2.5 times the value of the company's bitcoin investment of about $38 billion, adjusted for $7 billion of debt and a small software business. That's down from a recent peak of more than 3.5 when the stock hit a high of $543 on Nov. 21.
But given the big premium, the company has an incentive to sell stock and buy bitcoin since new purchases are accretive to its bitcoin holdings per share.
The debt sales offer a way to add bitcoin with minimal equity dilution since the company issues stock at a large premium to its stock price -- a 55% premium in the $3 billion -- and with an interest rate of zero. Debt, however, adds risk to the MicroStrategy story.
As long as MicroStrategy can issue stock at a big premium to the value of its bitcoin, expect more sales by the company and a continuing payday for the underwriting group.
Write to Andrew Bary at andrew.bary@barrons.com
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December 04, 2024 14:53 ET (19:53 GMT)
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