L’Occitane en Provence Harvard Case Solution & Analysis

L’Occitane en Provence Case Solution 

Introduction

L’Occitane en Provence is a privately held company that sells cosmetic products. The company provides its customers with products that are made from natural ingredients and it has built a brand image for itself as an environment friendly company, which provides high quality products for its customers.The company has been able to grow at a quick rate and has expanded itself into international markets however;the production facilities of the company yet remain in France.

To further continue in the same growth rate, the company requires increased capital which can support the growth of the company. The management of the company is planning to perform an IPO and get listed on a stock exchange togetthe capital required by the company for further growth and expansion.

ReinoldGeiger, who was the chairman and CEO of the company and also the major shareholder in the L’Occitane en Provence, is not sure that the IPO will be a solution for increasing the growth of the company. He was concerned that by going public, the shareholding pattern for the company will change and he might lose control of the company, just as the founder of the company lost control of his company after giving 90% stake in the organization to a venture capitalist for providing finance.

However, he knew that going public is the most viable option for the company to grow at a good rate.In addition to this,if the company is able get stock exchange listing, it will also gain other benefits which will allow the company to further grow at a quick rate.

Initial Public Offering

The initial public offering allows companies to get a stock exchange listing, when the companies are listed on stock exchange then they can offer equity shares to the general public through a public issue. Being listed on stock exchange allows the company to expand its capital base to a large extent.

Based on the financial performance of the company, it can be seen that the gearing of the company is increased highly and to take the gearing level of the company to an acceptable, the company needs to decrease its total debt or increase its equity base. Currently in a situation when the company is expanding, decreasing debt will not be a practical decision for the company therefore, the company needs to increase its capital base. The total debt to equity ratio of the company shows that the total debt of the company has been growing quickly as compared to equity of the company and in 2009 has been able to pass the equity, therefore the company needs an extensive source of financing. By issuing shares of the company at an IPO, the company will be able to raise finance that will be for a long term and is a cheaper source of finance as compared to venture capital.

Benefits of IPO

By gaining listing on the stock exchange, the company will be able to get a large source of finances which can be utilized in a number of ways by the organization. It also allows the investors, who already own shares in the company, to be able to sell their holdings easily as the firm will be attain a market value at which the share of the company will by valued. The company can also sell further shares at a later period to receive equity capital for further expansion. By becoming a public listed entity, the company will achieve a prestigious status and higher quality labor can be easily attracted by the company. Being listed on an exchange, it allowed the company to use its shares as a currency for acquiring other organizations or paying employees bonus................

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