Accretion/dilution analysis
Compare the buyer’s pro forma EPS to standalone EPS after a deal including synergies and financing.
Direct answer
Model pro forma EPS with purchase price, mix, synergies, and financing; accretion means EPS rises, dilution means it falls.
Walk through the structured answer
Set purchase assumptions
Use offer price, shares, and debt to find total consideration; define cash vs. stock mix and transaction fees.
Adjust income statement
Add target net income, subtract after-tax deal amortization and financing costs, and include synergies.
Update share count and interest
Incorporate new shares issued, foregone interest on cash, and new interest expense on debt financing.
Calculate pro forma EPS
Divide pro forma net income by new fully diluted share count; compare to acquirer standalone EPS.
Pitfalls to avoid
- Ignoring purchase accounting amortization that can drive dilution.
- Applying synergies pre-tax or forgetting integration costs.
- Not matching financing sources to correct interest rates and fees.
Follow-up angles
- What synergies would you trust most in this deal?
- How do you treat stock options in the exchange ratio?
- Why can a dilutive deal still be attractive?
Keep drilling the set
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