Caterpillar writes off most of China deal after fraud

Fri Jan 18, 2013 6:23pm EST

The Caterpillar logo is seen on a tractor in Gilbert, Arizona October 20, 2009. REUTERS/Joshua Lott

The Caterpillar logo is seen on a tractor in Gilbert, Arizona October 20, 2009.

Credit: Reuters/Joshua Lott

(Reuters) - Caterpillar Inc uncovered "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal and wipe out half a quarter's profits.

Caterpillar, the world's largest maker of tractors and excavators, said on Friday it would take a noncash goodwill impairment charge of $580 million, or 87 cents per share, in the fourth quarter of 2012.

Analysts had expected the company to earn $1.70 per share in the fourth quarter, according to Thomson Reuters I/B/E/S.

Caterpillar closed the purchase of ERA Mining Machinery Ltd and its subsidiary Siwei last June, paying HK$5.06 billion, or $653.4 million at current exchange rates.

A member of the Caterpillar board during the course of the Siwei deal told Reuters the board was distracted at the time by a larger transaction and paid relatively little attention to the Siwei acquisition.

"It came as a complete surprise to us," the former board member said of the fraud, speaking on condition of anonymity because of the sensitivity of the situation. "It was presented to us as a pretty straightforward transaction. It's a shame. It should have been investigated further."

In a statement, Caterpillar said an ongoing investigation launched after the deal closed "determined several Siwei senior managers engaged in deliberate misconduct beginning several years prior to Caterpillar's acquisition of Siwei."

The company said it had replaced several senior managers at Siwei, adding that their conduct was "offensive and completely unacceptable."

Caterpillar was not immediately available for further comment.

Representatives for Siwei were not immediately available for comment before business hours on Saturday morning in China.

Representatives for Citigroup and Freshfields Bruckhaus Deringer LLP, which served as financial and legal advisers to Caterpillar on the transaction, could not be immediately reached for comment.

Blackstone and DLA Piper, which acted as ERA's financial and legal advisers, were not immediately available for comment.

(Reporting by Ernest Scheyder; Additional reporting by Soyoung Kim in New York; Writing by Ben Berkowitz; Editing by Gary Hill and Tim Dobbyn)

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Comments (6)
Prairiefire wrote:
It sure in nice that Cat sent a half a billion dollars to ship American jobs overseas and not do due diligent on the purchase…

Jan 18, 2013 6:31pm EST  --  Report as abuse
rconaway wrote:
Gee, a Chinese company that is manned by a bunch of thieves and liars? They are just following their governments mandate to steal everything that isn’t nailed down in the U.S. Why we even allow this as a country is beyond me. Ban all imports from China and bring manufacturing home.

Jan 18, 2013 7:01pm EST  --  Report as abuse
pbgd wrote:
Looks like the CAT got diddled by Blackstone.

Jan 18, 2013 7:19pm EST  --  Report as abuse
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