(In-depth analysis) What the Lumentum–Marvell merger and stock reactions mean | Chesley Investment Advisory & learning team [Weekend study X Morning Brief / 26.11.03.Tue]

An independent exercise, not a statement by the video creator or verification of every claim in the video.

Ownership dilution and EPS dilution need not match

Hypothetically, an acquirer earning 100 with 100 shares has EPS of 1. Issuing 50 shares leaves existing holders with 100 ÷ 150 = about 66.67% ownership, but adding target earnings of 30 makes EPS 130 ÷ 150 = about 0.867, down about 13.33%. If combined after-tax net income reaches 150, EPS stays at 1. The ownership reduction of about 33.33% therefore differs from EPS dilution. Separately, with a fixed exchange ratio of 4.5, an acquirer share-price change from 200 to 160 changes the indicative stock consideration from 900 to 720: the fixed element is the ratio of share counts.

Check for yourself

1. Do earnings and shares use consistent periods and dilution conventions, including deal costs, synergies and interest?
2. Which date supplies the conversion price, and what completion and waiting-period risks remain?

Limits of application

This hypothetical arithmetic does not recalculate either company’s actual EPS, issuance or share price. It excludes weighted-average shares, convertibles, acquisition accounting, taxes, transaction costs, hedging, dividends and contract amendments, and assumes closing on the specified terms.