Michael Saylor responded to a Bloomberg information anchor this week about Jim Chanos’ bearish commerce towards MicroStrategy.
In accordance with Saylor’s characterization of the short-sale by considered one of historical past’s most profitable short-sellers, there are in all probability 3 ways Chanos’ commerce might go — all of which can allegedly lose cash.
The hedge fund founder who made a reputation for himself predicting the collapse of Enron and Chinese language actual property thinks MSTR is overvalued. Particularly, Chanos has positioned a hedged short-sale towards Saylor’s firm.
As a result of MSTR trades at a 1.7X a number of to its $63 billion web asset worth (mNAV), Chanos has shorted MSTR and concurrently hedged his brief with an extended bitcoin (BTC) commerce.
That hedged guess is straightforward. Chanos believes MSTR’s mNAV will decline over time. As a result of anybody can observe alongside, the commerce has arrange a showdown between two Wall Avenue titans.
Saylor thinks that Chanos misunderstands what MicroStrategy provides. Deflecting consideration away from MSTR’s premium relative to its BTC holdings, Saylor informed Bloomberg TV’s viewers that he’s truly the world’s “largest issuer of BTC-backed credit instruments.”
3 ways for Jim Chanos to lose cash shorting MicroStrategy
Saylor went on to elucidate three paths that Chanos’ brief commerce towards MicroStrategy might take. All three paths will, in Saylor’s self-serving view, lose cash for his short-selling adversary.
Saylor centered on MicroStrategy’s three publicly traded sequence of most popular shares — Strike (STRK), Strife (STRF), and Stride (STRD). He defined that by way of these dividend-yielding choices, MicroStrategy has discovered one other approach to purchase BTC that isn’t dilutive to widespread MSTR shareholders.
Though Saylor used to emphasise at-the-market (ATM) share gross sales that actually diluted MSTR shareholders $1 for each $1 in BTC buy, preferreds don’t enhance the share rely of MSTR.
As a substitute, they encumber the long run money move of MicroStrategy — a few of which have to be paid out as dividends to most popular shareholders.
In Saylor’s view, there’s loads of urge for food on Wall Avenue for a brand new sequence of most popular shares or different non-dilutive credit score devices. In consequence, he sees three ways in which Chanos’ brief sale might transpire.
First, Saylor thinks that MicroStrategy’s mNAV might persist or enhance for a few years to come back as a result of sustained market demand for BTC treasury corporations. That is Chanos’ worst-case state of affairs.
Second, Saylor thinks that MSTR might commerce down barely to a “weak premium,” through which case “we’re just going to sell the preferreds” to lift cash and purchase extra BTC.
Third, Saylor warned Chanos that if MSTR ever declined to a unfavorable mNAV, he plans to promote extra preferreds and use the proceeds to purchase again MSTR inventory.
Learn extra: MicroStrategy wannabes and the return of mNAV mania
‘No liquidation risk’ and ‘never come due’
In Saylor’s view, all three outcomes are dangerous information for Chanos.
Devices like STRK, STRF, and STRD preferreds have “no liquidation risk,” “never come due” in principal compensation, and “there’s not even an interest rate risk.”
Not like company bonds or dilutive widespread inventory choices, preferreds and different devices might hold non-dilutive capital flowing into MicroStrategy for a really very long time, Saylor believes.
Chanos, for his half, fully disagrees with Saylor that this capital-raising enterprise will be capable of persist its mNAV over the long run.
Chanos defined his outlook succinctly, saying, “Shareholders are paying around $220,000 for BTC that trades around $110,000.” That may be a simple, apparent play for a hedged short-seller.
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