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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
Operations in Monterrey: Ariel-Mexico
According to Ariel’s CEO Alphonse Helmont, “We were attracted to Mexico for the same reason we built operations in Brazil and other emerging markets. We wanted to diversify our operations and believed we needed to establish a strong presence in places besides Europe and the United States.” He added: “Certainly there is risk [in these countries], but their economies are dynamic and Ariel must be present. … You can see our competitors feel the same way!” A key characteristic of Ariel’s printing and imaging products was their durability, which Ariel’s executives felt conveyed a competitive advantage in emerging economies where Ariel positioned equipment as offering a lower total cost of ownership. In particular, the company’s marketing material claimed a working life 10 months longer than its closest competitor, with 30% lower service costs. CEO Helmont observed: “We demonstrate to our customers that we have a local presence and we are the lowest total-cost provider. This creates loyalty and solid market positions in Mexico and other of our newer markets.” The manufacturing facility in Monterrey was located near a small research and design facility, also owned by Ariel. While many product specifications for Ariel’s equipment were formulated at the
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Groupe Ariel S.A.: Parity Conditions and