Why might an acquirer with a lower P/E ratio avoid an all-stock deal?

An acquirer with a lower P/E ratio may avoid an all-stock deal primarily due to the risk of EPS (earnings per share) dilution and the potential negative perception from shareholders. When a company issues shares to acquire another firm, the combined company's earnings are spread over a larger number of shares. If the acquirer has a lower P/E ratio, this can indicate that the market values its earnings less favorably compared to the target company.

In an all-stock transaction, acquiring a higher P/E target could dilute the earnings attributable to each share of the acquirer, as the earnings may not increase proportionately with the new shares issued. This dilution can lead to a lower EPS post-transaction, which might be viewed negatively by existing shareholders. The market often reacts unfavorably to dilution concerns, leading to a drop in share price if the perception is that the deal will not enhance shareholder value.

In contrast, the other choices do not directly address the specific concerns related to an all-stock deal for a company with a lower P/E ratio. For instance, operational costs and tax liabilities are relevant to M&A but do not specifically encapsulate why EPS dilution is a primary concern in this context. Ensuring that shareholders remain confident in their investment is