The notion of dilution due to issuance of new shares appears misplaced or misunderstood. To make my point, suppose SyQuest issues an extra number of shares N for a price, say, $3 per share. The company takes in 3N dollars of equity funds. Some nvestors presume that the current EPS will be reduced due to the N extra shares as per simple math. This presumption is not necessarily correct. If SyQuest can earn a higher rate of return on 3N dollars than the existing investments, then the EPS will go up. This is what SyQuest seems to be expecting -- a phenomenal growth in earnings due to the extra equity investment. New equity (as opposed to new debt) is also less risky.
To understand the issue of dilution due to new equity issuance, just suppose that SyQuest does not have any investment opportunity for the 3N dollars. Then, it can use the amount to buy back the extra N shares just created, posing no dilution of EPS. But, it seems SyQuest is poised for a tremendous opportunity and so it expects to earn at a higher rate than the current EPS due to the infusion of new equity. The new equity investment signals that the NEW equityholders are more informed about SyQuest's opportunity than outside shareholders. On the whole, it appears to be a good credible signal that the company will do better EPS-wise.
Sankar
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