International Financial Economics

LOccitane en Provence

Case Questions

1. You have been hired as an investment banker by LOccitane. Should LOccitane do an initial
public offering (IPO)? What are the benefits to the firm of doing so? Costs and disadvantages?
Try to give as much empirical evidence as possible to back up your answers.

2. You have been hired as an investment banker by a large U.S. institutional investor who is
considering purchasing LOccitane stock. Provide an analysis of i) France as an investment
destination, ii) key success factors, and iii) LOccitanes strengths and weaknesses.

3. a. Evaluate the pros and cons of each stock market for LOccitane. In case of an IPO, which
stock market would you recommend? Why? What considerations should determine the
location choice?

b. What type of listing is suitable for LOccitane to pursue? Direct IPO domestically or
internationally, or through an ADR program? If through ADR, which type of ADR program?

4. What is the right cost of capital for the various equity issuing options (i.e., US, France, UK,
HK)? Measure and explain the cost of capital for each equity option. Do your results affect
your choice of place to issue? You can use the data provided in the case and also search for
additional relevant data to justify the calculations.

5. What is the value of LOccitane en Provences equity?

a. Conduct a DCF using the assumptions of equity analysts given out in the last paragraph of
the case.
b. Conduct a sensitivity analysis of the DCF that varies the LOccitane cost of capital and
the perpetuity growth rate (based on your answers to question 4 and other possible values).

6. Now imagine you are LOccitanes investment banker, and you need to recommend an issue
price for its shares. What would be a reasonable price? Please go beyond DCF and also
analyze other prices based on trading and transaction multiples.

7. Now imagine that you are the investment banker of the large U.S. institutional investor.
Would you take into account any corporate governance considerations to determine the price
at which you would buy? If so, which and how would they change the price ? Please justify
numerically as much as possible.
Supplementary data for the case:

Corporate cost of debt (France, 2009) 6.00%

Unlevered Beta for cosmetic industry (Worldwide, 2009) 1.03

Market risk premia

US 5.30%
Hong Kong 6.70%
London 5.60%
France 5.60%

Country Risk Spread (compared with US)

US 0.00%
Hong Kong 0.68%
London 0.17%
France 0.90%

Treasury bond yields 5 Year 10 Year 15 Year 30 Year

US 2.68% 3.84% - 4.64%
Hong Kong 2.08% 2.78% 2.78% -
London 2.79% 4.01% 4.44% 4.42%
France 2.51% 3.60% 3.98% 4.25%