Group Ariel

Groupe Ariel S.A.: Parity Conditions and Cross-Boarder Valuation

On June 23, 2008, Aurnaud Martin was assigned to perform an analysis of an investment proposal and make an “up or down” recommendations to his superior. As a financial analyst for Groupe Ariel, a global manufacturer of printing and imaging equipment, Martin examined many-cross boarder projects. The Mexican investment proposal called for the purchase an installation of new automated machinery to recycle and remanufacture toner and printer cartridges. Though the proposed expenditure was relatively small (3.5 million pesos), Ariel required discounted cash flow analysis for all such investments in its newer foreign markets by corporate headquarters in Mulhouse. Martin had yet to decide weather to perform the discounted cash flow analysis in Euros or pesos, or indeed, whether NPV would be affected by the choice of currency.

Groupe Arielle 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 global recession. Operating profit was expected to be €61.2 billion in 2008, and the company projected a small net loss for the year (-0.7 million euros).

Ariel’s low profitability was typical of the industry in 2008; all of its competitors were similarly affected by recession. One bright spot in the company’s outlook, however, was its growth in several emerging markets, including the so-called BRIC economies of Brazil, Russia, India, and China. Ariel had been a global firm for years, but did not move aggressively into emerging markets until 2003-2004. This was later than some of its competitors. Ariel competed in a relatively mature market, and its chief competitors were both established multinational companies-some of which had...