What might lead to a deal being classified as dilutive if the target's earnings are high?

The classification of a deal as dilutive often hinges on the number of shares that the acquirer needs to issue in order to complete the transaction. Even if the target company has high earnings, the acquirer's earnings per share (EPS) can still decrease if a substantial number of new shares are issued to finance the acquisition. This happens because while the target's earnings contribute positively to the overall earnings of the merged entity, the increased share count can dilute the existing shareholders' ownership, leading to a lower EPS.

In situations where the acquirer issues many shares relative to its existing shares outstanding, the impact of the target's earnings might not be enough to offset the dilution from the added share count. The increase in total earnings may not keep pace with the increase in the number of shares, thus resulting in an overall reduction in the EPS for the acquirer. This is why the acquirer’s decision to issue a significant number of shares can lead to a deal being classified as dilutive, regardless of the target's strong earnings performance.

The other factors listed, such as market demand for products, regulatory issues, or operational costs, do not directly influence the EPS calculation in the same manner and therefore do not play a critical role in determining whether a deal