One of the key things here is just looking at the actual acquisition price paid. And it's kind of useful to think about this in the context of the company's price earnings multiples. And I'm actually gonna jump down before I do anything more because this is a good place to talk about this. So the acquirer's PE ratio I can calculate by taking the acquirer's share price, which is already in dollars, and I'm gonna divide that by the acquirer's EPS. This is their consensus. Their consensus EPS forecast.

And this means the acquire is trading on about a 20.6 forward PE ratio. What I then want to do is compare this to the targets PE ratio. Certainly the price that we are buying the target at. So I'm gonna go and take the targets equity value at the top, and I've got the acquisition equity value by 87 billion. Absolute reference that, and I'm gonna divide by net income. We don't have a share count, so I'm just gonna divide by the net income for the targets numbers. I'm not including synergies here, I'm just going to use this basic number. But you can see here is the big problem is that the target we are purchasing at 36 times earnings. If for each dollar we're buying in the target, we are paying $36. The problem is, is that our own shares are only valued 20.6 times each dollar of earnings. And this is significantly debt finance deals. So we're handing over shares that are valued at 20 times and we are buying shares that are valued at 36 times. That's not a great deal because you're handing over paper, which is valued less highly than the paper you are buying. So it's like a kind of Pokemon card swap. So this is not a good transaction from just a straight accretion dilution based on an equity fund deal. But we don't always have to fund with equity, we could fund in debt. Now in this case, if I take my acquisition debt cost of 5%, absolute reference that and multiply it by 1 minus the marginal tax rate, and I'm gonna use the acquirers marginal tax rate because they are typically doing the funding. Then if what I get is if I just make that a percentage, 3.9%. So what that means is for each dollar of debt financing, it's gonna cost me 3.90 cents. Now I can convert this 3.9% into an effective peak ratio because if it costs 3.90 cents to raise a dollar of debt, 1 divided by that will give me the implied multiple. So I'm just gonna go to the very beginning and I'll do 1 divided by item and then I'm gonna format that as a multiple. So you can see here that the Multiple based on debt funding is significantly higher than the acquirer's equity PE ratio. What this means is that if I fund with debt, the deal should be less dilutive. It's still gonna be dilutive because the acquisition PE ratio is still higher than the debt PE ratio and still higher than the Acquirer PE ratio. So it's gonna be diluted in all cases. Another way of thinking about this, you could compare this to a cost of equity or a cost of debt after tax. And this is a kind of return on equity. So your cost of equity here is just going to be one divided by your equity multiple.

Your debt cost of debt off tax is 3.9%. So essentially if you're funded with equity, it's costing you 4.9% based on the earnings ratio. And if it's funded with debt on an off tax basis, that's costing you 3.9%. Well what return are we getting? We're Only getting 2.8% return. And that's why this is dilutive. because you're basically, your funding costs are more than your return. And even when you get to the full run rate of synergies, You're still seeing your return below your funding cost. And that's why at the top we have got this dilution.