Michael Saylor shifts to using preferred shares to buy Bitcoin as criticism rises
[NEW YORK] Michael Saylor's Strategy bought US$1.05 billion in Bitcoin in the last seven days, the third consecutive week in which the cryptocurrency treasury company has used preferred shares exclusively instead of common stock to fund purchases.
The company formerly known as MicroStrategy purchased 10,100 Bitcoin from Jun 9 to Jun 15 at an average price of US$104,080, according to a filing on Monday (Jun 16). The haul was the largest by Strategy in five weeks, raising its total holdings to roughly US$63.4 billion.
The emphasis on preferred shares comes as Saylor's cryptocurrency accumulation strategy attracts more attention from critics who have raised concern over the large premium the company's common stock commands over the value of its token holdings. Legendary short-seller Jim Chanos called Saylor a 'salesman' and has recommended buying Bitcoin and shorting Strategy's common shares on a bet the premium will close.
Saylor announced plans earlier this year to raise US$84 billion in capital to buy Bitcoin through a combination of at-the-market common share sales and debt offerings over the next few years. In 2020, Strategy began buying Bitcoin with cash on hand before shifting to stock sales.
The Tysons Corner, Virginia-based firm, which started as an enterprise software maker, has issued three classes of preferred shares, and has also used convertible bonds to buy Bitcoin. Selling more common shares can dilute the holdings of existing shareholders, while preferred stock can also have the same impact if the securities are convertible to common.
'There's definitely the potential for dilution,' said Mark Palmer, an analyst at Benchmark Capital, who has a 'buy' rating on Strategy. 'But the trade-off is that it's only the convertible instruments that enable Strategy to sell volatility into the market. At the same time, there is an understanding that dilution or other instruments that are linked to common shares are part of the strategy.'
The company funded the bulk of its purchases in the past week from the proceeds of the launch of its third class of preferred shares, which raised US$979.7 million. It raised an additional US$78.4 million from the sale of its so-called Strike and Strife preferred shares, according to the filing with the US Securities and Exchange Commission.
Saylor clapped back at comments from Chanos and other critics last week, saying Strategy's ability to raise funds 'at a premium' through the sale of its preferred stock was 'effectively risk-free'.
Strategy shares were little changed at around US$382 on Monday, and are up over 3,000 per cent since July 2020. The S&P 500 Index has climbed around 94 per cent during the same period, while Bitcoin has rallied about 1,060 per cent. BLOOMBERG
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