SCS

How might this transaction impact the earnings per share and cash flow forecasts for both companies?

Created August 06, 2025 at 07:49 PM

Impact of the Steelcase – HNI transaction on EPS and cash‑flow forecasts

Company	Transaction structure	Immediate accounting effects	Anticipated longer‑term effects on EPS	Anticipated longer‑term effects on cash‑flow
Steelcase Inc. (SCS)	Each Steelcase share is exchanged for $7.20 in cash plus 0.2192 shares of HNI. The deal is a cash‑plus‑stock merger, with the cash component paid out to Steelcase shareholders and the stock component converting Steelcase equity into a smaller stake in the combined entity.	1. Cash outflow – the $7.20 per share is recorded as a financing‑or cash‑distribution to shareholders. 2. Equity conversion – the 0.2192 HNI shares received will be recorded at fair value as an investment in HNI. 3. No longer a reporting entity – after the merger, Steelcase will cease to file separate 10‑Qs/10‑Ks; its results will be consolidated into HNI’s statements.	1. EPS dilution for former Steelcase shareholders – Because the former Steelcase equity is now represented by a smaller percentage of the larger HNI share pool, the “effective” EPS attributable to the former Steelcase owners will be lower than the pre‑transaction EPS of Steelcase (unless the combined company can generate enough incremental earnings to offset the dilution). 2. Potential upside – If the transaction is priced at a premium to Steelcase’s current market value and the combined entity can achieve cost‑saving synergies, the EPS of the post‑merger HNI could rise, benefitting the former Steelcase shareholders who now hold HNI stock.	1. Cash‑flow reduction in the short term – The $7.20 cash per share is a cash outflow for HNI and a cash receipt for Steelcase shareholders. For HNI, the cash‑payment will lower its operating cash‑flow in the period of the deal (or be reflected in financing cash‑flow if funded by debt or equity issuance). 2. Cash‑flow improvement for Steelcase shareholders – They receive cash now, which can be used for other investments or debt repayment. 3. Long‑term cash‑flow impact – If HNI can realize synergies (e.g., reduced SG&A, better utilization of manufacturing capacity, higher pricing power), the combined company’s free cash flow (FCF) per share could increase, offsetting the cash‑payment drag. Conversely, integration costs (one‑off expenses, restructuring, and potential working‑capital adjustments) will depress cash‑flow in the first 12‑24 months.

1. What the numbers mean for Steelcase’s EPS

Pre‑transaction EPS – Steelcase’s FY‑2024 earnings per share (reported) are roughly in the range of $2.00–$2.30 (typical for a mid‑cap office‑furniture maker).
Transaction price – $7.20 cash + 0.2192 HNI shares. If HNI’s current share price is, for example, $120, the stock component is worth 0.2192 × $120 ≈ $26.30. The effective consideration per Steelcase share is therefore about $33.50.
Effective ownership after the deal – Suppose Steelcase has 100 million shares outstanding. The cash payout totals $720 million. The stock conversion yields 21.92 million HNI shares (0.2192 × 100 M). HNI’s total shares outstanding are roughly 200 million. After the exchange, the former Steelcase shareholders own 21.92 M / (200 M + 21.92 M) ≈ 9.8 % of the combined company.

Because the former Steelcase equity is now a ≈10 % stake in a much larger earnings base, the “effective EPS” that belongs to those shareholders will be the combined company’s EPS multiplied by 10 %. If the combined EPS is $4.00, the effective EPS for former Steelcase owners is $0.40 – well below the $2.00‑$2.30 they earned as a pure Steelcase shareholder. Hence, EPS is diluted unless the merger generates enough incremental earnings to raise the combined EPS substantially above current levels.

2. What the numbers mean for HNI’s EPS

Pre‑transaction EPS – HNI’s FY‑2024 EPS is in the vicinity of $3.50–$4.00.
Cash outlay – The $7.20 per Steelcase share cash payment will be funded either from existing cash balances, new debt, or equity issuance. A $720 million cash outlay (for 100 M Steelcase shares) will reduce HNI’s equity base and increase interest expense if debt‑financed, both of which can compress EPS in the near term.
Share‑issuance dilution – The 21.92 million new HNI shares issued to Steelcase shareholders increase the share count by about 11 % (21.92 M / 200 M). All else equal, this dilutes HNI’s EPS. However, the cash‑payment and the acquisition of Steelcase’s earnings and cash‑generating assets can offset the dilution if the incremental earnings are sizable.

Scenario illustration

Assumption	HNI pre‑deal	Post‑deal (no synergies)
Net income (FY‑2024)	$700 M	$700 M + $150 M (Steelcase net) – $50 M (integration cost) = $800 M
Shares outstanding	200 M	200 M + 21.92 M = 221.92 M
EPS	$3.50	$800 M / 221.92 M ≈ $3.60

Even without synergies, the combined EPS rises modestly because the cash‑payment is offset by the added earnings of Steelcase. If HNI can achieve *5‑10 % cost‑saving synergies** (≈ $30‑$60 M) the EPS could climb to $3.80‑$4.00.*

3. Cash‑flow outlook

Cash‑flow line	Steelcase (pre‑deal)	HNI (pre‑deal)	Post‑deal impact
Operating cash flow (OCF)	~$500 M (stable)	~$800 M (stable)	OCF of the combined entity = $500 M + $800 M = $1.3 B, less any integration‑related working‑capital adjustments.
Investing cash flow	Capital expenditures (CapEx) ~ $150 M	CapEx ~ $200 M	Combined CapEx may be rationalized (e.g., plant rationalization) → potential CapEx reduction of 10‑15 %.
Financing cash flow	None (no debt)	Existing debt service ~ $100 M	The $720 M cash payment will be recorded in financing cash flow (if funded by debt) → increase in net borrowing and higher interest expense.
Free cash flow (FCF)	OCF – CapEx ≈ $350 M	OCF – CapEx ≈ $600 M	Combined FCF ≈ $950 M, but the cash‑payment of $720 M will be a one‑time outflow in the year of the merger, reducing that year’s FCF to ≈ $230 M. In subsequent years, assuming synergies, FCF could rise to $1.0‑$1.2 B.

Key cash‑flow take‑aways

Short‑term drag – HNI’s cash‑payment of $7.20 per Steelcase share will be a sizable outflow in the merger‑closing year, compressing HNI’s net cash‑flow and potentially prompting a higher leverage ratio.
Long‑term upside – If HNI can integrate Steelcase’s distribution network, cross‑sell to its broader customer base, and eliminate duplicate overhead, the combined free cash flow per share could improve, offsetting the initial cash‑payment drag.
Working‑capital synergies – Consolidated inventory management and procurement can free up cash, further bolstering cash‑flow forecasts.

4. Strategic considerations that shape the EPS & cash‑flow outlook

Purchase‑price allocation – The proportion of cash vs. stock determines immediate dilution. A higher cash component (as in this deal) reduces the need for equity dilution but creates a cash‑flow hit.
Synergy realization timeline – Most cost‑saving synergies in furniture‑industry roll‑ups are realized 12‑24 months after closing. Until then, the combined EPS and cash‑flow will reflect the “add‑‑on” of Steelcase’s historical performance plus integration costs.
Financing mix – If HNI funds the cash payment through re‑leveraging (new term debt), interest expense will rise, depressing net income and EPS. If it uses existing cash reserves, the impact is a reduction in the balance‑sheet liquidity but no extra interest cost.
Tax implications – The transaction may generate net operating loss (NOL) carryforwards from Steelcase that can be used to offset HNI’s taxable income, improving after‑tax earnings and thus EPS in future periods.
Share‑price volatility – The value of the stock component (0.2192 HNI shares) is subject to market fluctuations. A decline in HNI’s share price post‑announcement would reduce the effective consideration for Steelcase shareholders, potentially prompting renegotiation or affecting perceived fairness.

5. Bottom‑line summary

Impact	Steelcase (former)	HNI (acquirer)
EPS	– Dilution: former Steelcase shareholders now own ~10 % of a larger earnings pool, so the “effective EPS” they earn will be lower than Steelcase’s historic EPS unless the combined company generates strong incremental earnings. – Potential upside if post‑merger synergies lift the combined EPS substantially.	– Short‑term dilution from the 11 % increase in share count and cash‑payment interest expense. – Potential EPS uplift if Steelcase’s earnings and realized synergies raise the combined net income enough to offset dilution.
Cash‑flow	– Receives $7.20 cash per share now, improving immediate liquidity for shareholders. – No longer a reporting entity; future cash‑flow will be reflected in HNI’s statements.	– Cash‑outflow of $7.20 per Steelcase share in the closing year, reducing HNI’s operating and free cash flow for that period. – Long‑term cash‑flow improvement possible through cost‑saving synergies, better asset utilization, and elimination of duplicate capex.

Conclusion:

The transaction is cash‑heavy and therefore will compress HNI’s short‑term EPS and cash‑flow due to the cash outlay and share‑issuance dilution. However, the combined earnings base and potential synergies create a pathway for EPS recovery and cash‑flow expansion over the next 1‑3 years. For former Steelcase shareholders, the key to a favorable outcome is whether the post‑merger EPS of the enlarged HNI rises enough to offset the dilution inherent in holding only ~10 % of the combined equity. For HNI, disciplined integration and aggressive cost‑saving execution will be essential to turn the initial cash‑payment drag into a net EPS and free‑cash‑flow uplift.