If a buyer estimates earnings-per-share dilution in the first year after an acquisition, what does it indicate?

Estimating earnings-per-share (EPS) dilution in the first year after an acquisition is an indication that the buyer anticipates a decrease in its EPS due to the acquisition. EPS dilution occurs when the number of shares outstanding increases due to the acquisition financing method, while the earnings attributed to these shares do not increase proportionately, resulting in lower EPS.

When a company acquires another company, it may pay with cash, stock, or a combination of both. If the acquisition results in reduced earnings relative to the number of shares outstanding, this dilution is reflected in a lower EPS figure. The concept of dilution is critical in M&A analysis as it can impact shareholder value and provide insights about the financial health of the combined entity.

In this case, the buyer is predicting that the acquisition may not generate enough earnings in the immediate term to offset the increase in share count, leading to a dilution of earnings per share. Thus, the correct interpretation of estimating EPS dilution is that the buyer's EPS will decrease after the deal.