If an acquirer with a share price of $40 and a P/E ratio of 20 acquires a target with a share price of $30 and a P/E ratio of 10 in an all-stock deal, what is the likely result?

In an all-stock deal, the key factors to consider are the Price-to-Earnings (P/E) ratios of both the acquirer and the target. The acquirer's P/E ratio is 20, while the target's P/E ratio is 10. This indicates that the acquirer is paying a premium for the target relative to its earnings.

When the acquirer issues new shares to pay for the target's shares, the impact on earnings per share (EPS) must be analyzed to determine whether the transaction is accretive or dilutive. An accretive deal enhances the acquirer's EPS, while a dilutive deal lowers it.

In this scenario, since the acquirer has a higher P/E ratio compared to the target, each dollar of earnings from the target contributes less value in terms of the acquirer's stock price. The target contributes earnings to the acquirer but does so at a lower valuation multiple. Hence, when the acquirer integrates the target's earnings, the overall EPS of the acquirer will increase because they are effectively acquiring earnings at a lower multiple. This means that the combined corporation will have a higher EPS post-transaction than it had before, making the deal accretive.

Thus, this all