The debate over Strategy’s (MSTR) recent dilutive transaction resurfaced, this time with Strategy CEO Michael Saylor and Strike and Twenty One Capital (XXI) CEO Jack Mallers on Wednesday at BTC Prague, as the two weighed in on how investors should evaluate the company’s increasingly complex capital structure.
Mallers asked Saylor how he defines net asset value (mNAV), noting that some investors include out-of-the-money securities in their calculations and asking if he agrees with that approach. (Strategy currently has $6.7 billion of convertible debt that is out of the money, meaning the securities are not expected to convert into shares at the current share price of $115.)
Mallers also questioned Saylor’s view on dilution, asking for an example of a dilutive transaction if issuing shares for cash is not considered dilutive.
Saylor responded that mNAV can be calculated by including the notional value of convertible debt, common equity and preferred equity. However, he argued that mNAV is just a valuation framework. Investors can also evaluate gross assets per share and net assets per share, which may exclude preferred stock or convertible debt from the calculation. According to Saylor, the distinction matters less when debt and preferred equity represent only a small portion of the company’s overall asset base.
Regarding dilution, Saylor argued that issuing shares in exchange for cash is not inherently dilutive because shareholders receive a tangible asset in exchange, whether cash or bitcoins. He said raising capital strengthens the balance sheet, broadens the capital base and improves solvency. As an example, Saylor pointed to Strategy’s recent addition of approximately $100 million to its US dollar reserves, bringing the total to approximately $1 billion.
