The Munich Beer Company plans to acquire Liverpool Beer Co for 60 per share, a 50 percent premium over the current market price Jan Hppe, 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...

Jan Hppe the financial director of Munich Beer argues that the valuation of Liverpool Beer Co at 60 per share can be justified using a priceearnings a ...

The Munich Beer Company plans to acquire Liverpool Beer Co. for 60 per share, a 50 percent

Question:

The Munich Beer Company plans to acquire Liverpool Beer Co. for £60 per share, a 50 percent premium over the current market price. Jan Höppe, 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 above our £60 offer price.” Do you agree with this analysis? What are Höppe’s key assumptions?

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