Ericsson's Share Shuffle: A Dilution Dilemma or Value Play?

Ericsson's recent move to issue 23.1 million C shares as part of its 2025/2024 Long-Term Variable Compensation (LTV) programs has sparked debate over equity dilution, voting power dynamics, and whether executives' incentives are truly aligned with shareholders. With the telecom giant's shares hovering near $28 billion in market cap, the question remains: Is this a strategic maneuver to retain talent and drive growth, or a risky dilution of shareholder value?

The Share Structure Playbook

Ericsson's dual-share class structure has long been a point of scrutiny. A shares carry 10 times the voting rights of B shares, while C shares—issued temporarily—are converted to B shares post-acquisition. The recent 23.1M C share issuance, priced at ~SEK 5, is part of a broader strategy to fund executive compensation and expand treasury stock. Once converted to B shares, these will be used to:
- Reward employees (up to 10.9M B shares for LTV 2025 and 8.6M for LTV 2024).
- Cover taxes/social security, with up to 70% of vested shares sold to offset liabilities.

The immediate impact: Total shares rise to 3.37 billion, with B shares now at 3.11 billion. Treasury stock (B shares held by Ericsson) jumps to 38 million by May 2025.

Dilution: A Mathematical Perspective

The 23.1M C shares represent ~0.68% of Ericsson's total post-conversion share count—a seemingly modest dilution. However, cumulative effects loom large. Over the past five years, Ericsson has issued shares for multiple LTV programs, including ~12.7M B shares in 2022 and ~10.9M in 2023. Adding 2025's 23.1M C/B shares, the total equity issued for LTV programs since 2022 exceeds 46.7 million shares, or ~1.4% of current shares.

The bigger risk isn't the headline dilution but the voting power imbalance. A shares (261.8 million) hold ~57% of total voting rights, while B shares (3.11 billion) account for ~43%. If executives or insiders control A shares, they could sway decisions even as B shares grow.

The Alignment of Interests: Performance or Perk?

Ericsson's LTV programs tie payouts to three-year performance metrics (2025–2027), including revenue growth and margin improvements. This creates a carrot-and-stick dynamic: Executives must deliver to unlock shares, but the use of equity may dilute long-term value.

Critics argue that using shares to compensate executives shifts risk to shareholders. For example, if the company issues 10.9M B shares for LTV 2025, but only 30% remain with employees (the rest sold to cover taxes), the net dilution is ~7.6M shares. Yet, if earnings grow at a faster clip than dilution, shareholders could win.

Risks & Opportunities

Risks:
- High P/E pressure: Ericsson's trailing P/E of ~22 (vs. 14 for rivals like Nokia) leaves little room for earnings misses.
- Regional headwinds: Declines in sales in certain regions (e.g., Asia) could strain margins.
- Voting power concentration: A-share holders may prioritize short-term gains over shareholder-friendly policies.

Opportunities:
- Treasury stock flexibility: The 38M B shares in treasury provide a buffer to offset future dilution.
- Growth catalysts: Strong performance in the Americas and 5G rollouts (as noted in earnings calls) could justify the P/E premium.
- Tax-efficient structuring: Selling 70% of shares to cover liabilities reduces cash outflows, preserving capital for R&D.

Investment Strategy: Play the Long Game, but Watch the Metrics

For investors, Ericsson's equity dynamics create a high-reward, high-risk proposition. Here's how to navigate it:
1. Buy on dips: If technical indicators (like the current “Sell” signal) overreact to near-term volatility, use pullbacks below $12 (current price ~$13) to accumulate.
2. Monitor treasury stock usage: Track if Ericsson uses its 38M B shares to repurchase from the open market, which would offset dilution.
3. Focus on earnings quality: Ericsson's guidance for margin expansion and 5G revenue must hold. A miss here could trigger a selloff.
4. Avoid if P/E widens: If the stock climbs without earnings growth, the P/E could become unsustainable.

Final Verdict

Ericsson's share structure adjustments are a calculated gamble. While the 23.1M C shares issuance poses dilution risks, the alignment of executive incentives with long-term growth—coupled with strong 5G tailwinds—could justify the move. Investors should proceed with caution, but those willing to bet on Ericsson's tech leadership and disciplined treasury management might find value in the volatility.

Actionable Takeaway: Ericsson's equity dynamics demand patience. Hold for the long term if 5G adoption accelerates, but stay nimble on dips and earnings reports.

This analysis synthesizes Ericsson's structural moves with market realities, offering a roadmap to navigate its complex equity landscape.