If the P/E paid is greater than the P/E of the acquiring company, on a postmerger basis the target firm's EPS increases and the acquiring firm's EPS decreases.

Question

Quizplus · Accepted Answer

This is because the acquiring company is likely overpaying for the target company, and the dilution of the acquiring company's EPS will occur as a result of the higher price paid. Alternatively, the target firm's EPS will see a boost due to the increased valuation resulting from the acquisition.

If the P/E Paid Is Greater Than the P/E of the Acquiring