An explanation of how dilution worksHey everyone,
So a few people are concerned about the dilution. So i'm going to give a bit of insight on dilution and how it works. When a stock is being acquired share for share, they are not giving them equity in cash but instead are exchanging for their company's shares.
There is a pro rata number for the shares (3.575:1) that is proposed here and it seems likely it will go through having secured 56% of the votes. The result of apporving the shares will require ACB to issue new outstanding shares for it to convert them. Yes doing this will cause a dilution in the ACB shareholders equity but a lot of people do not understand that acquiring the company will not lead to outstanding shares of 960 million. That's not how it works.
When a company is acquired on a share fully diluted basis, they also calculate all of the acquired company's assets and liabilities. In doing so they neutralize the effect of dilution.
If the company we are acquiring is successful and has strong assets and sales then it will be beneficial to ACB and it will provide a strong synergy (i.e. - cooperation of two or more companies combined creating an effect greater than the value of their separate effects), then the current shareholders will have a strong gain in the long run. The combination of the two companies will give ACB an additional appreciation because of their assets and LEAF's targeted sales/revenue.
Cheers,