Dilutive Acquisition

Dilutive Acquisition

An acquisition that will decrease the acquiring company's EPS.

Notes:

These acquisitions will tend to cause a firm's market price to decline, as they are expected to decrease the company's future earnings. In essence, the price paid by the acquiring firm exceeds its addition to EPS.

As a general rule, a dilutive merger or acquisition occurs when the P/E ratio of the acquiring firm is less than that of the target firm.

See also: Accretion, Accretive Acquisition, Acquisition, EPS, P/E Ratio, Target Firm