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Accretion-dilution - Accretion/Dilution Analysis FIN 461...

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Accretion/Dilution Analysis FIN 461 Professor Thomas Boulton
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Accretion/Dilution Accretion/Dilution analysis: assess the impact of an acquisition on the acquirer’s EPS Accretive: combined (pro forma) EPS > acquirer’s standalone EPS Dilutive: combined EPS < acquirer’s standalone EPS Breakeven: combined EPS = standalone EPS Wall Street generally frowns on dilutive deals. Why? However, deals are often tolerable if they are expected to be accretive in year 2. Fundamental flaw?
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Accretion/Dilution Steps: 1. Estimate a pro forma net income for the combined entities Potential adjustments: New acquirer debt Excess cash and liquid securities used to finance acquisition Synergies Option proceeds Deal-related fees Underwriting fees Goodwill, incremental depreciation and amortization, asset write-ups/write-downs 1. Calculate the combined company’s new share count Acquirer’s share count + new shares created to finance deal 1.
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