How will the merger affect the combined company's earnings per share (EPS) and dividend yield?

Answer

The press release you quoted tells us that Monroe Capital Corporation (MRCC) and Horizon Technology Finance Corporation (HRZN) – two business‑development companies (BDCs) managed by affiliates of Monroe Capital – have signed a definitive merger agreement. It does not include any quantitative financial details (e.g., projected earnings, the number of shares that will be outstanding after the merger, or the dividend policies of either company). Consequently, we cannot give a precise, number‑by‑number forecast for the combined company’s earnings‑per‑share (EPS) or dividend yield.

Below is a comprehensive, step‑by‑step framework that explains how a merger of two BDCs typically influences those two metrics, and what you can expect to see (or watch for) once the companies release the required post‑merger financial information.

1. How a merger influences EPS

1.1 The basic EPS formula

[
\text{EPS} = \frac{\text{Net Income (or earnings attributable to shareholders)}}{\text{Weighted‑average shares outstanding}}
]

1.2 What changes in a BDC merger?

1.3 Typical EPS outcome for BDC mergers

• Accretion (EPS ↑): If the acquirer (HRZN) is larger on a earnings‑to‑share basis than the target (MRCC) and the exchange ratio is modest, the combined EPS will usually be higher than either stand‑alone EPS.
• Dilution (EPS ↓): If the target’s earnings are strong relative to its share count, or if the exchange ratio is generous, the combined EPS can fall short of the acquirer’s pre‑merger level.

Bottom line: Until the exact exchange ratio and the post‑merger net‑income forecast are disclosed (typically in the merger’s “Pro‑Forma Financial Information” section or in the SEC Form 8‑K filing), we can only say that the combined EPS will be the sum of the two BDCs’ earnings divided by the new share count. Analysts will later compute an “EPS accretion/dilution” estimate once the numbers are public.

2. How a merger influences dividend yield

2.1 The dividend‑yield formula

[
\text{Dividend Yield} = \frac{\text{Annual dividend per share}}{\text{Current market price per share}}
]

2.2 What changes in a BDC merger?

2.3 Typical dividend‑yield outcome for BDC mergers

• Yield stability: Because BDCs are legally bound to distribute most of their earnings, the combined dividend yield usually remains in the same ball‑park as the two pre‑merger yields (often 6 %–10 % for many BDCs).
  
• Minor adjustments: If the merger creates a modestly larger share pool without a proportional earnings boost, the yield may dip a few basis points. Conversely, if the merger yields cost savings or higher investment returns, the dividend per share could be raised, nudging the yield upward.

Bottom line: The combined dividend yield will be largely driven by the post‑merger QNI and the new share count. Until the merged company releases its first post‑merger dividend declaration (usually within 30 days of the merger closing), the exact yield cannot be quantified.

3. What to watch for after the merger closes

4. Practical take‑aways for investors

1. Short‑term: Expect a single‑quarter “transition” period where EPS may be volatile because the denominator (share count) is being adjusted and merger‑related expenses are being recorded. Dividend per share will likely stay at the pre‑merger level until the board formally declares the post‑merger payout.

2. Medium‑term (first full reporting year):

   • EPS will settle at a combined‑company level that reflects the sum of the two BDCs’ earnings, less any integration costs.
     
   • Dividend yield will likely track the combined QNI and should stay within the historical range of the two BDCs (e.g., 6 %–10 %).
     

3. Key risk: If the exchange ratio is generous to MRCC shareholders, the share count could rise substantially, potentially diluting EPS and dividend per share unless the merger generates enough incremental earnings or cost savings.

4. Action: Review the SEC Form 8‑K filing that will be posted once the merger is approved and the transaction closes. That filing will contain the exact exchange ratio, the pro‑forma earnings and QNI, and the board’s proposed dividend. Those numbers will let you compute the precise EPS and dividend‑yield impact.

Bottom line

• Based solely on the information in the press release, we cannot provide a numeric estimate of the combined company’s EPS or dividend yield.
  
• The mechanics of the merger (share‑exchange ratio, combined earnings, and the legal requirement for BDCs to distribute most of their earnings) suggest that:
  • EPS will be the sum of the two BDCs’ earnings divided by the new, larger share count—potentially slightly diluted or accreted depending on the exchange ratio.
    
  • Dividend yield will likely remain in the same range as the two pre‑merger BDCs, because the combined entity must still meet the 95 % payout rule; any change will be driven by the balance between the new share count and the post‑merger QNI.

To obtain the exact figures, monitor the post‑merger SEC filings (Form 8‑K, subsequent 10‑Q/10‑K reports) and the first dividend announcement from the combined MRCC‑HRZN entity. Those documents will give you the precise EPS and dividend‑yield numbers you need.