Let’s asssume Shine are smart enough to have found a good...

Let’s asssume Shine are smart enough to have found a good deal:

In the present circumstance where the stock is undervalued by the market issuing stock to pay for the purchase isn’t viable as Shine have correctly identified.  I would rather acquisitions are paid for by retained capital - as such there are no borrowing overheads for the purchase and no increase to debt. The negative of this approach is short term impact on other uses for the capital - such as paying out dividends.

Much depends on whether the acquisition turns out to be financially justified. Does making this acquisition provide more return to investors than they are likely to get if the capitals is returned to them and they invest it elsewhere? If so then its better to buy the company than to pay the div; If not then it may be better to not make the aquiustion.

This logic still applies if you fund through debt since through borrowing you are just deffering when shareholder money is spent and paying lenders interest and fees for the privilege of doing it. As such the purchase needs to be an even better deal if funded through borrowing in order to be profitable (it’s essentially investing “on margin”) 

tl;dr: don’t spend money you don’t have.... or if you do make sure there’s enough margin to justify the additional risk taken on