APRIL 19, 2010
TIMOTHY A. LUEHRMAN JAMES QUINN
Groupe Ariel S.A.: Parity Conditions and Cross-Border Valuation On June 23, 2008, a Monday morning, Arnaud Martin arrived at his office in Groupe Ariel’s corporate headquarters in Mulhouse, France. The previous week, Martin had requested additional financial information about an investment proposal from Ariel-Mexico, a wholly owned subsidiary that operated a manufacturing facility and a regional sales office in Monterrey, Mexico. The information had arrived late Friday—too late for Martin to analyze—and was waiting for him Monday morning. As a financial analyst for a global manufacturer of printing and imaging equipment, Martin examined many cross-border projects, particularly since Ariel had accelerated its move into emerging markets several years earlier. The Mexican investment proposal called for the purchase and installation of new automated machinery to recycle and remanufacture toner- and printer cartridges. Cartridge recycling had become an important part of Ariel’s business in many markets and promised continued growth. Many office product retailers operated formal toner cartridge recycling programs, for both the environmental benefits of keeping materials out of landfills and demonstrated cost savings for their customers. Writing in a leading trade journal, one analyst predicted, “We are going to see more and more refined approaches to recycling and remanufacturing [cartridges] in the coming months and years … Both corporate and individual consumers are becoming habituated to it. They have simply come to expect recycling as an option, even for smaller cartridges at lower price points.” Ariel-Mexico’s Monterrey plant began its cartridge recycling program in 2005. The plant’s recycling process consisted of a sequence of operations carried out almost entirely by hand, with the help of hand tools and a simple machine. The investment proposal called for replacing this process with new automated machinery from Germany that cost an estimated 3.5 million pesos (approximately €220,000) fully installed. As described in the project summary, Ariel-Mexico expected to realize substantial savings in labor and materials almost immediately. Though the proposed expenditure was relatively small, Ariel required a discounted cash flow analysis for all such investments in its newer foreign markets and a review by corporate headquarters in Mulhouse.
________________________________________________________________________________________________________________ HBS Professor Timothy A. Luehrman and writer James Quinn prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
4194 | Groupe Ariel S.A.: Parity Conditions and Cross-Border Valuation
Martin was assigned to perform an analysis of the investment proposal and make an “up or down” recommendation to his superior by Wednesday morning.
Groupe Ariel S.A.
Groupe Ariel was a global manufacturer of printers, copiers, fax machines, and other document production equipment. The company also provided consulting and document outsourcing services, with after-sales service contracts constituting about 18% of overall revenue. Company sales for 2008 were projected to be €3.35 billion, down from 2007 due to a global recession. Operating profit was...