By Beth Main.
Caterpillar Inc shares fell 1.5 percent after news broke that the machinery manufacturer discovered “deliberate, multi-year, coordinated accounting misconduct” in one of its Chinese subsidiary companies acquired last June. The fraud destroyed the value of the deal in question and halved Caterpillar’s expected earnings for the last quarter of 2012.
The Chinese cheaters in question are ERA Mining Machinery Ltd and its subsidiary Siwei, China’s fourth-largest maker of hydraulic roof supports for mines. The company comprises about 4,000 employees in Zhengzhou and was worth $653.4 million when Caterpillar bought it last year. Apparently Caterpillar was distracted at the time by a larger deal and so didn’t do their homework on their Chinese counterparts (the American corporation’s revenue for 2011 was $60.138 billion, you’d think they could afford to hire a few auditors).
Accounting scandals are nothing new in China and yet still came as a ‘complete surprise’ to Caterpillar Inc. The company claims not be discouraged by this incident and still intends to expand operations in China beyond the current 23 manufacturing facilities they already have.