Breakingviews: Caterpillar CEO exit looks like preemptive strike

Published Mon, Oct 17 20164:50 PM EDT

Breakingviews

Kevin Allison

Doug Oberhelman will retire as boss of the $51 billion earth-moving equipment maker next year. Cat will also split the CEO and chairman jobs. It looks like a calculated attempt to get in front of would-be activist investors after bad deals and poor performance damaged credibility. More from Breakingviews : Xerox, Community Health spin into M &A downside Peoria, Illinois-based Caterpillar dug itself into a hole under its outgoing boss. Oberhelman bet big on mining with 2011's $8.6 billion acquisition of steam-shovel manufacturer Bucyrus, just before global metals prices peaked and then plunged. In 2013, the company took another hit when it was forced to write off most of the value of its $677 million purchase of a Chinese mining-equipment maker after it unearthed big accounting problems. Caterpillar's stock has returned some 72 percent including reinvested dividends since Oberhelman took the helm in 2010, thanks partly to earnings boosted by thousands of job cuts. But that is well short of the 137 percent return on the broader S &P 500 Index over the same period, reflecting the weak cycle and Caterpillar's stumbles. While the company's shares have rallied 50 percent from their January lows, a profit warning in April and a patchy record hitting Wall Street estimates haven't exactly inspired confidence in the company's rehabilitation. Oberhelman's departure doesn't quite amount to a clean break, either. Jim Umpleby, the head of Caterpillar's energy and transportation business, will take over as CEO in January, and he is a 35-year company veteran. The outgoing boss will also stick around as executive chairman until March. Still, the decision to split the two roles, with board member and Blackstone private-equity bigwig Dave Calhoun stepping in as non-executive chairman, suggests Caterpillar recognizes the need for an independent and financially minded check on the CEO's ambitions. The question is whether that will be enough to assuage possible activists. Caterpillar's shares fell slightly after it went public with its succession plan. With industrial merger activity tracked by Thomson Reuters at an all-time high year-to-date, it's still hard to rule out calls for a breakup or other radical change. But the changing of the guard is a step toward greater credibility. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Doug Oberhelman, chief executive officer of Caterpillar Inc.

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