In an all-stock transaction, what would an analyst be primarily assessing in the context of accretion/dilution?

In an all-stock transaction, the primary assessment an analyst would focus on is the pro forma earnings per share (EPS) of the combined entity post-acquisition. This metric is crucial because it directly impacts the value perceived by shareholders of both the acquiring and target companies. The analysis of pro forma EPS allows the analyst to determine whether the acquisition will be accretive or dilutive to the earnings of the acquirer.

Accretion occurs when the pro forma EPS is higher than the acquirer’s existing EPS, indicating that the transaction enhances shareholder value. Conversely, dilution happens when the combined EPS is lower, suggesting a decrease in shareholder value. Assessing pro forma EPS involves evaluating both companies' earnings, the exchange ratio of the stock transaction, and the anticipated synergies or cost savings that might arise from the merger.

While the total transaction size, the cash position of both companies, and the market value of the combined entity are important factors in analyzing a transaction, they do not directly measure the effect of the acquisition on shareholder value in terms of earnings per share. Therefore, focusing on pro forma EPS provides a clearer insight into the financial impact of the transaction on the shareholders involved.