Why might buyers react negatively to a dilutive transaction?

Buyers might react negatively to a dilutive transaction primarily because it can lead to a decline in earnings per share (EPS). When a company issues additional shares, existing shareholders will own a smaller percentage of the company, which can dilute their earnings. As a result, if the company’s overall earnings do not increase proportionally with the number of shares, EPS can decrease. Since many investors use EPS as a key indicator of a company’s profitability and financial health, a perceived decline can lead to a negative reaction in the stock price and investor sentiment.

This concern often overshadows any potential long-term benefits that might come from the transaction, such as securing new capital for growth or strategic initiatives. If buyers believe that their stake in the company has become less valuable due to lower EPS, they may be reluctant to invest or hold their shares, anticipating a decline in the company's performance.