(Bloomberg) — MicroStrategy Inc.’s Michael Saylor may soon have almost as many common shares at his disposal to help fund the company’s Bitcoin buying spree as market behemoths Amazon.com Inc. and Alphabet Inc. have outstanding.
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Analysts expect MicroStrategy will easily win a company-sponsored proposal to increase the number of authorized Class A common shares to 10.3 billion from 330 million when shareholders vote on Jan. 21. Saylor, co-founder and chairman of the dot-com-era software maker turned leveraged Bitcoin proxy, controls about 47% of the voting power.
That would give MicroStrategy the ability potentially to have more shares outstanding than all but four of the five largest members of the Nasdaq 100 Index — Nvidia Corp., Apple Inc., Alphabet and Amazon.com. In October, MicroStrategy announced that it would use an at-the-market share-issuance program as well as debt sales to raise $42 billion in capital over three years to buy Bitcoin. Since then, the company has almost doubled its holdings of the token to more than $44 billion through 10 consecutive weekly purchases.
In most instances, such a potential share increase would be frowned upon by investors because it dilutes earnings per share, shareholder equity and voting rights.
“That generally would not be viewed positively, certainly by the existing shareholders and probably by the market as a whole, unless investors see this as a necessary step for the company moving forward to reorient its strategy,” said Ed Clissold, chief US strategist at Ned Davis Research Inc.
In this case, investors may not care. MicroStrategy has become a Wall Street favorite because of the eye-popping gains of more than 2,500% that the shares have registered since it embarked on the Bitcoin buying strategy in 2020. Bitcoin is up almost 800% during the same period.
The gap between shares authorized and outstanding can be wide. Alphabet has 300 billion authorized, while Nvidia has 80 billion. And MicroStrategy’s more than 10 billion authorized shares may not all be sold. While MicroStrategy is more than two-thirds of the way through the already alloted $21 billion share issuance, the company has added only just over 43 million shares through at-the-market sales since the plan was implemented.
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Class A shareholders lack significant power within the company. Class B shares — which are almost all owned by Saylor — currently have 46% of voting power, and in January MicroStrategy announced plans to raise as much as $2 billion through one or more offerings of perpetual preferred stock, which would be senior to Class A common stock.
Shareholders are also expected to pass an amendment on Jan. 21 to increase the number of authorized shares of preferred stock from 5 million to 1 billion.
MicroStrategy plans to use its additional shares to finance private transactions of Class A stock, conduct sales of at-the-market equity offerings and to settle redemptions or conversions of convertible notes, according to a proxy filing.
The company measures its acquisitive value to shareholders through a metric it created called Bitcoin yield, which measures the change in Bitcoin holdings per diluted share over time, but doesn’t account for changes in the price of Bitcoin. MicroStrategy doesn’t pay a dividend.
While offering additional shares is not uncommon, MicroStrategy’s plan to have such a large increase in shares at one time would be unique, according to Michael Lebowitz, a portfolio manager at RIA Advisors.
“No company has ever done anything of this magnitude,” Lebowitz said.
Even though MicroStrategy has been able to raise capital for Bitcoin purchases through equity and fixed-income securities offerings, it only has $6.5 billion of equity offerings left under the $42 billion plan and has limited other options. The company’s underlying software business had losses in at least the last three quarters.
Lebowitz also sees potential shareholder downside to largely increasing share offerings if debt isn’t also increased.
“The leverage they have because of all those convertible offerings, the debt offerings, becomes greatly reduced,” Lebowitz said. “One of the things that investors like about MicroStrategy is that it’s a leveraged play on Bitcoin, and effectively what they’re doing is de-leveraging.”
Saylor said in a December interview with Bloomberg Television that the company would like to “build more intelligent leverage.”
For the share increase amendments to pass, they will have to be approved by the holders of a majority of the voting power of all outstanding common stock entitled to vote. The shareholder meeting will take place at 10 a.m. New York time on Tuesday.
–With assistance from Tom Contiliano.
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