Behind this term are two quite different concepts with the same name. Don't mix them up!

1 - Dilution in control
Dilution in control, i.e. the decline in a shareholder's percentage of control of a company, which occurs after a deal resulting in the issue of new equity, in which the shareholder has not taken part, e.g.:

• A capital increase, whether or not it reserved for current shareholders;
• Mergers, asset transfers, etc.

In a country with normal corporate governance, new shares can only be issued after approval from shareholders at an extraordinary general meeting, based on a report by an outside party, such as a company's auditor or an outside auditor brought in for a merger, and with legal protection from being abused by the majority.

2 - Financial dilution
This involves mainly earnings per share (EPS), as current low dividends make dividend per share less significant and as net asset value is relevant only for holding companies, real-estate trusts and conglomerates.
Remember that EPS measures book wealth creation shareholders during the period in question. It is very frequently used, although it does not reflect the cost of equity.
EPS dilution is the decline in EPS from the level that it would have been if there had been no deal, e.g., a capital increase or reduction, a merger, a disposal paid for in shares or cash.

3 - Relationship with value creation
From a strictly financial point of view, dilution of control when new shares are issued is based on just two parameters:

• Is the issue price of the new shares higher or lower than the value of the existing shares?
• Is the marginal profitability of funds thus raised and invested in the company, higher or lower than the cost of capital?

If the answer to these two questions is yes, dilution in control is not a bad thing. Quite the contrary, it ends up creating value for the shareholder! Let's not be Malthusian, at least in the case of major groups that have no core shareholders. Granted, for companies whose control is more or less locked away, non-financial considerations can predominate.
Dilution in control - when it comes from the exercise of stock options or, more generally, from employee incentives (e.g. capital increase reserved for staff at an issue price 20% below market value) - is the price to be paid for the hope of a better return, as company managers and employers will presumably be more motivated and efficient if they are given financial incentives.

Does EPS dilution after a transaction amount to destruction of shareholder value?
EPS is diluted by a transaction when the immediate cost of financing measured by the after-tax interest rate (in the event of debt financing) or the reverse P/E (equity financing) is higher than the investment's immediate return as measured via the reverse P/E of the target of an acquisition). In other words, these EPS trends have no direct bearing on short- term value creation.
More precisely, if, after the deal:
  - the company's operating risks,
  - its growth prospects,
  - or its capital structure
are different from what they were before the deal, the change in EPS tells us absolutely nothing on whether value has been created or destroyed by the deal.
In fact, it is only if, after the deal:
  - the company's operating risks,
  - its growth prospects,
  - and its capital structure
are the same as before that EPS dilution amounts to value destruction; if they increase, then value has been created.
In fact, the real question is not so much EPS in the very short term as:
  - whether the transaction involved the issue of shares at a price below or above the estimated value of the stock (capital augmentation/reduction)?
  - what will be the return on assets acquired, compared to the cost of capital (acquisitions of assets)? or what will be the marginal return on funds raised, compared to the cost of capital (capital increase)? or what was their margin rate of return in the company (capital reduction)?

Indeed, deals that create value will sooner or later result in EPS growth, while those that destroy value will result in EPS dilution. But EPS growth is not necessarily the same as value creation, nor is EPS dilution necessarily tantamount to value destruction.