GO
Loading...

Enter multiple symbols separated by commas

Caterpillar Writes Off Most of China Deal after Fraud

Caterpillar
Daniel Acker | Bloomberg | Getty Images

Caterpillar 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.

Contact Asia News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Asia Video

  • This is the top credit risk for Asian banks

    Eugene Tarzimanov, VP and senior credit officer at Moody's Investors Service, explains why the unwinding of asset bubbles is the biggest risk for Asian banks in the months ahead, followed by China's slowdown.

  • China stocks may see a 'double-dip': Expert

    With sentiment being extremely fragile, Chinese shares could see a double-dip, says Dickie Wong, executive director of Kingston Securities.

  • China in turmoil again: What will the PBOC do?

    Vasu Menon, VP of Group Wealth Management at OCBC Bank, says the People's Bank of China (PBoC) could ease monetary policy further and "do whatever it takes" to prevent a stock market crash.