explanation

Detailed commentary aimed at illuminating a subject matter (or its difficult parts) in a manner that its underlying concepts and their linkages become clear and comprehensible. See also definition and description.

The language utilized in mergers tends to confuse the issues and encourage irrational actions by managers. For example, dilution is usually carefully calculated on a pro forma basis for both book value and current earnings per share. Particular emphasis is given to the latter item. When that calculation is negative (dilutive) from the acquiring company's standpoint, a justifying explanation will be made (internally, if not elsewhere) that the lines will cross favorably at some point in the future. The attention given this form of dilution is overdone: current earnings per share (or even earnings per share of the next few years) are an important variable in most business valuations, but far from all powerful. What really counts is whether a merger is dilutive or anti-dilutive in terms of intrinsic business value (a judgment involving consideration of many variables).