DEFINITION of 'Antidilutive'

A term describing the effects of securities retirement, securities conversion or corporate actions (such as acquisitions made through the issuance of common stock or other securities) on earnings per common share (EPS), where EPS is increased for shareholders.

A transaction is considered to be antidilutive if its effect is to increase the amount of EPS, either by lowering the share count or increasing earnings.

A second use of the term refers to ownership rights, whereby existing shareholders in a certain class of shares have rights to purchase additional shares when there is a new issuance of securities that would otherwise reduce the ownership percentage of existing holders. This is called an anti-dilution provision.

BREAKING DOWN 'Antidilutive'

Although most commonly used in reference to convertible securities whose exercise would have the effect of increasing EPS, the use of the term "antidilutive" has become much more comprehensive.

For example, if Company A acquires Company B by using its common stock, but the earnings of Company B add more to EPS than the common stock issued, it is said to be an antidilutive acquisition.

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