What is a potential impact of issuing new shares in an all-stock deal on existing shareholders?

Issuing new shares in an all-stock deal can lead to the dilution of existing shareholders' percentage ownership in the combined entity. When additional shares are created and distributed, the total number of shares outstanding increases. As a result, existing shareholders own a smaller proportion of the company than they did before the issuance, unless they participate in the new share issuance to maintain their ownership percentage. This dilution can affect their influence in corporate decisions and may also impact their perceived value of the investment, as a larger number of shares might divide profits among more owners, potentially decreasing earnings per share (EPS) as well.

This concept of dilution is crucial in understanding shareholder equity and the overall dynamics of M&A transactions where stock is used as a medium of exchange for the acquired company.