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ยท Posted on
February 21, 2024

It's been a bumpy ride but Qantas is on the up so now it's going on a shopping spree

Good bye pandemic struggles and hello acquisitions for Qanny.

What's the key learning?

  • Share dilution is when a company issues additional shares.
  • For existing shareholders, dilution reduces their slice of the pie.
  • Share dilution can be good for the company in the long term.

๐Ÿ‘‰ Background: Things have been tough for ol' Qanny lately. The company actually sold a massive block of land near Sydney Airport to pay down some of the crazy debt it accumulated during the peak of the pandemic.

๐Ÿ‘‰ What happened: Earlier this week, Qantas said it would return to profitability as early as next financial year... and it's now marked the good news with a $614 million purchase: charter flight operator Alliance Aviation.

๐Ÿ‘‰ What else: There won't be any dollars switching hands, because it's an all-scrip deal. Qantas is issuing new shares worth $614 to fund the purchase.

๐Ÿ”” What's the key learning?

๐Ÿ’ก Share dilution is when a company issues additional shares, sometimes to fund an acquisition. While it's often seen as good for the company's long-term growth, it can reduce the value of existing investors' shares.

๐Ÿ’ก Let's say a company has 100 shares and you own 50 of them. If the company issues 50 new shares, there are now 150 total shares. That means your 50% stake just turned into 33%. That's share dilution, and it reduces your slice of the company pie ๐Ÿฅง.

๐Ÿ’ก There might not be heaps to celebrate here for existing Qantas shareholders in the short-term, but the hope is that Qantas' performance (and share price) increases in the long-term as a result of the acquisition, and makes it all worth it ๐Ÿ“ˆ.

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