MicroStrategy has introduced an innovative capital-raising strategy by launching preferred stock ($STRK). The company plans to issue 2.5 million preferred shares at $100 per share, aiming to raise $250 million in initial capital.

Each preferred share is convertible into 1/10 of a Class A common share, effectively setting the conversion price for common stock at $1,000 per share ($100 ÷ 1/10 = $1,000).

8% Fixed Dividend for Investors

Investors in these preferred shares will receive a fixed 8% annual dividend based on the nominal value. For instance, an investor holding a $100 preferred share will receive $8 annually ($2 per quarter), regardless of stock price fluctuations.

MicroStrategy has three options for dividend payments:

1. Cash payments from company profits
2. Issuance of common stock in lieu of cash dividends
3. A combination of both cash and common stock

If the company is unable to pay dividends on time, any outstanding payments must be settled in the future.

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Key Features & Strategic Advantages of Preferred Stock

Unlike bonds, these preferred shares have no maturity date, allowing investors to hold them indefinitely. Moreover, MicroStrategy cannot force conversion into common shares unless the total outstanding preferred shares shrink to $62.5 million (25% of the initial issuance).

From a corporate finance perspective, this structure allows MicroStrategy to raise funds at a 196.4% premium over its current stock price. If common shares are trading at $337.40, but preferred shares are convertible at $1,000, the company secures capital at a significantly higher valuation—an important strategic advantage.

Reducing Dilution Through Preferred Stock Issuance

Instead of directly selling common stock, MicroStrategy utilizes this structure for more efficient capital raising.

For example, to raise $2 billion, issuing common stock at $450 per share would require 4.44 million new shares.
However, issuing preferred stock at $115 per share would require just 17.39 million preferred shares, which eventually convert into 1.73 million common shares—reducing total share dilution by 2.7 million shares.

If MicroStrategy’s stock price appreciates in the future, this strategy could delay dilution for 8 to 16 years.

Conclusion: Will MicroStrategy’s Strategy Succeed?

MicroStrategy now has two capital-raising mechanisms:

1. Selling common stock at market prices
2. Issuing preferred shares, which defers dilution and provides investors with stable returns

If successful, this approach could serve as an attractive alternative to convertible bonds, granting the company greater control over its capital and liquidity, while providing investors with an 8% fixed dividend and conversion flexibility.

Should Bitcoin and MicroStrategy’s stock continue their upward trajectory, this method may outperform traditional fundraising strategies and set a new precedent in financial markets.