SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : Dell Technologies Inc.
DELL 122.55+4.4%Nov 21 9:30 AM EST
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: jhg_in_kc who wrote (55004)7/29/1998 1:34:00 PM
From: Chuzzlewit  Read Replies (1) of 176387
 
jhg, **OT**

The dilution issue is complicated because it depends on multiple components. I assume you are talking about a merger using stock rather than cash.

The first is earnings. If the merger results in the acquiring company having a decreased earnings per share outlook for the the period(s) immediately following the merger, then the merger has diluted earnings. But a second, and more sophisticated look at earnings examines the entire anticipated earnings stream, and focuses on growth of earnings. When earnings growth slows because the acquirer has purchased a slow growing company for stock, the result is that the combined entity will grow slower than the parent.

A third component is the price paid. In virtually every case an acquirer will pay more than the market value for the acquired company. This effectively dilutes the ownership position of s/h in the parent. You can calculate this fairly easily (and this calculation is generally mangled by the financial press). Add the capitalized value of the two companies. Divide this number by the total number of shares that will result from conversion of acquired companies shares plus the number of shares of the acquirer. This will give you the theoretical share price of the combined entity. From this you can easily calculate the theoretical share price of the acquired company. The cost of the deal will then be the difference in share price pre-merger and post-merger announcement times the number of shares o/s.

I hope this helps.

TTFN,
CTC
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News