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Financial Statement Analysis and Valuation

The Munich Beer Company plans to acquire Liverpool Beer Co. for 60 per share, a 50 percent premium over current market price. Jan Hoppe, the Financial Director of Munich Beer, argues that this valuation can easily be justified, using a price-earnings analysis. Munich Beer has a price-earnings ratio of 15, and we expect that we will be able to generate long-term earnings for Liverpool Beer of 5 per share. This implies that Liverpool Beer is worth 75 to us, well below our 60 offer price.

Do you agree with this analysis? What are Hoppes key assumptions?