Company A has a net income of $240, share price of $3 and has 160 shares outstanding. Company B has a net income of $300, share price of $4 and has 15 shares outstanding. If Company A purchases Company B in an all stock deal at a 25% premium, what is the % change in accretion or dilution?

Equity Value of Company B

$4 share price
x 15 shares outstanding
$60 equity value
x 1.25 (25% premium)
$75 acquisition price

# of Shares Issued to Buy Company B

$75 equity value
÷ $3 share price
25 shares issued

Total # of Shares Outstanding

160 common shares outstanding
+ 25 shares issued
185 total shares outstanding

Combined Net Income and EPS

$240 net income of Company A
+ $300 net income of Company B
+ $540 combined net income
÷ 185 total shares outstanding
$2.92 EPS

Original EPS

$240
÷ 160
$1.5 EPS

Accretion

$2.92
– $1.5
$1.42 accretion

$2.92
÷ $1.5
1.95
– 1.0
0.95, or 95% accretion