Caterpillar writes off most of China deal after fraud
By Ernest Scheyder(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.
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The Hen & the Pig Go To Breakfast
A Hen and a Pig were sauntering down the main street of an Indiana town (yes, this is another shaggy dog story!) when they passed a restaurant that advertised “Delicious ham and eggs: 75 cents.” “Sounds like a bargain,” approved the Hen. “That owner obviously know how to run his business. “It’s all very well for you to be so pleased about the dish in question,” observed the Pig with some resentment. “For you it is all in the day’s work. Let me point out, however, that on my part it represents a genuine sacrifice.”
All stocks by nature are risky.
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Once our large losses are locked in, it will take years and much larger profit to recover!
Method, Mind, and Money Management!!!
What did you notice above???
Do you care to share???