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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 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
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