What distinguishes an accretive merger from a dilutive merger?

Accretive mergers are characterized by their ability to increase the earnings per share (EPS) of the acquiring company post-merger. This means that when two companies combine, if the new entity has an EPS that is greater than the EPS of the acquiring company prior to the merger, it is considered accretive. This increase in EPS generally benefits shareholders as it can lead to higher valuations and an enhanced perception of the company's profitability.

In contrast to this, a dilutive merger results in a decrease in the acquiring company's EPS, which can negatively impact shareholder value. Typically, a dilutive situation arises when the cost of the acquisition, whether through debt, issuing more shares, or other means, outweighs the earnings generated from the acquired company.

The other options provided do not accurately capture the defining characteristics of accretive and dilutive mergers. For example, not all dilutive mergers involve cash transactions or incur higher taxes, nor do they necessarily guarantee higher returns. Understanding these nuances helps clarify the financial implications of mergers and acquisitions on shareholder value.