just as was the case of specifically chosen pig gut supplied from china by americans to sell to and be use in american medicine made by american companies, and
the case of mattel spec-ed lead-coating of toys,
all sorts (and particularly those who pour over nyt, wsj, economist, forbes) fretted, bleated and yelped 'oh look oh look' on the ostensible china duping of supposedly astute caterpillar management, and now, as would must, it turns out that caterpillar was done in by good old boyz of america to the lazy management of caterpillar
as it turns out, all are not as it seemed, again
it almost seemed that the cretins at cat deserved what was dished out by fellow americans, and failed miserably to guard shareholders interest, and
the folks who chose to write about / read story as a china-bash story are too funny, as was the case of pig guts and story of lead-lined toys
the story below surely indicates that the true american investors in china did just fine, buying low from china @ 38m and selling high to americans @ 700m/2 or 350m, all probably an offshore deal and so does not help in any way to plug the hole at the treasury back home
just in in-tray
From: S
Sent: Tuesday, January 22, 2013 9:36 AM
Subject: Deal Gone Wrong Adds to Caterpillar's Troubles in China
Thought you’d appreciate this one…
While I wouldn’t doubt Caterpillar got duped…I also recall Chinese GAAP is quite strange and unless the due diligence understands the difference in standard (booking sales early is NOT necessarily against Chinese GAAP) I think Catepillar might have assumed too much…that and fact that 2012 was a slow year which made all the garbage float to surface.
January 21, 2013, 6:58 p.m. ET
Deal Gone Wrong Adds to Caterpillar's Troubles in China
By COLUM MURPHY and JAMES T. AREDDY in Shanghai and JAMES R. HAGERTY in Pittsburgh
Caterpillar Inc. CAT +2.01%believed acquiring China's Zhengzhou Siwei was a way for the U.S. company to boost its fortunes in a lucrative but challenging market.
Siwei's sales and profit growth were surging. And the company offered access to China's mining industry, where domestic companies were prospering.
Siwei, which sells mine-safety equipment, also boasted an American pedigree. Its controlling shareholders were James E. Thompson III, the scion of one of Asia's most successful expatriate families, and Emory Williams, a former head of the American Chamber of Commerce in China. Caterpillar paid about $700 million in June for Siwei's parent, ERA Mining Machinery Ltd.
But now, the purchase has dealt a blow to Caterpillar's already lackluster performance in China.
The Peoria, Ill., construction-machinery maker on Friday said it would write down ERA's value by $580 million, blaming "deliberate, multiyear, coordinated accounting misconduct" that was designed to overstate profit at the unit before the deal. The accounting surprise contributed to the departure of a senior Caterpillar executive, a person familiar with the matter said.
The full nature of the accounting issues remain unclear beyond Caterpillar's statement that it discovered discrepancies between ERA's actual and recorded inventories, which would lead to a broader look at its accounting practices. Caterpillar also said it found improper revenue-recognition practices that were "early and at times unsupported." The company said it is "considering all of its options to recover its losses."
Messrs. Thompson and Williams didn't respond to requests for comment. Together they controlled just under half of ERA's shares when Caterpillar bought it, with Mr. Thompson owning about two-thirds of the block, according to securities filings.
Former Caterpillar employees and industry insiders say the company has struggled to establish its place in the rough-and-tumble China market, where an emphasis on low prices and political connections outweigh Caterpillar's strength as a maker of premium equipment.
China accounts for roughly half of the world's demand for construction machinery, and Caterpillar executives have said that unless the company can "win" in China, it risks losing its crown as the industry's biggest player world-wide.
Beyond the blow from ERA, Caterpillar's China operation faces an industrywide construction slump and the rise of domestic rivals that are gaining market share.
"If you don't do something in China as a multinational to constrain the growth of your Chinese competitors, they will emerge as threats," says Stephen Dyer, a partner with management-consulting firm A.T. Kearney. Foreign companies "don't necessarily have cheap and so-called good-enough products for the market."
Caterpillar defends its plans for China and says the company still sees promise in Siwei's business. "Our strategy to expand our coal-mining business in China is unchanged, and we are optimistic about the underground coal-mining-equipment opportunities," Caterpillar says. It also attempted to fill the low-price niche in 2008 by purchasing Shandong Engineering Machinery Co. for an undisclosed amount.
Caterpillar says it will take the ERA charge in the fourth quarter and that it doesn't expect the matter to affect Caterpillar's results for this year. The $580 million write-down is small compared with Caterpillar's market capitalization of $63 billion. Caterpillar announced the charge after the close of regular trading Friday and the company's shares fell 1.5% after hours. The U.S. stock market was closed Monday.
The problem comes as Caterpillar and other international rivals face increasingly tough competition from within China. Fast-growing machinery makers such as Sany Heavy IndustryCo. 600031.SH +5.00%and Zoomlion Heavy Industry Science & Technology Co. 1157.HK -0.18%have won market presence through assertive sales staff and aggressive pricing and financing terms. Critics say some Chinese equipment makers take advantage of weak accounting procedures and strong government backing to operate at what Western companies would consider a loss.
In 2007, when China sales accounted for 2.5% of Caterpillar's $41.5 billion in global revenue, the company announced a goal to triple its Chinese sales by 2010. But despite investing in 23 factories in China, Caterpillar early last year said the country accounted for only 3% of the company's sales, which were $60.1 billion in 2011. Japanese rival Komatsu Ltd. 6301.TO -0.38%gets about 8% of its sales from China.
Chinese companies' roots and domestic sales staff give them advantages when dealing with China's diffuse state-owned construction and mining companies, people in the industry say.
David Beatenbough, an American executive at construction-equipment maker Guangxi LiuGong Machinery Co., says he expects LiuGong's 100 or so dealers to establish their roughly 600 outlets near customers, who sometimes pay in cash. "We believe in a strong customer relationship, and we have to have dealers who are closer to the customers," he said.
In contrast, Caterpillar's network is run by just four authorized China dealers, all of them units of other multinational companies.
Caterpillar says its "business model, which includes what we believe is the strongest dealer network in our industry, is what has positioned Caterpillar as the global leader in our industry." Its dealers are expected to have deep pockets for financing and to provide Caterpillar-approved repairs.
Siwei traces its roots to China's bloated state-owned corporate sector. The company's business, making hydraulic supports for mine roofs, offers smaller profit margins and a lower profile than Caterpillar's big machines.
It also can be a tough business for generating cash, says Stephen De Pretre, a managing director for consulting firm Sapphire Group Asia. Siwei "has a long collection period," says Mr. De Pretre, who is based in Beijing. "You have to fund everything. You have to wait six to 12 months to see your money."
But Siwei has strong connections with local mine operators, offering a built-in customer base and potential distribution for other products. A 2010 filing with the Hong Kong Stock Exchange filing said Siwei had 9% of the market.
Milwaukee-based mining-equipment maker Bucyrus International Inc. had expressed interest in acquiring Siwei, before Bucyrus was acquired by Caterpillar in 2010, according to two people familiar with the situation.
"If they had bought it five or six years ago, it would have been a fraction of the price," Mr. De Pretre says.
The company that eventually became Siwei was assembled from other operations by Li Rubo, a Chinese citizen who lives in Beijing. A person who has met Mr. Li describes him as well-connected with local governments and mines. Mr. Li, who also uses the English name John Li, couldn't be reached for comment.
Mr. Li in 1997 met Mr. Williams, an American businessman with a background in construction-material supplies, and the two become friends. Mr. Williams has a well-known name in business circles; his father, also named Emory Williams, had been a chief financial officer of what is now Sears Holdings Corp. The younger Mr. Williams, whose wife is Chinese, was chairman of the American Chamber of Commerce in China in 2005 and 2006.
Mr. Williams and his family in 2007 invested in about a quarter of Siwei and he took a major operational role. Siwei soon began to post strong profit growth, with earnings reaching 124.9 million yuan ($20.1 million) in 2009, more than six times its profit in 2007. Revenue over the period roughly doubled to 1.236 billion yuan.
In a complicated transaction known as a reverse takeover, Siwei's operations became publicly traded in Hong Kong in 2010. The resulting company, which initially was called ERA Holdings Global Ltd., gained a new top investor in Mr. Thompson. Mr. Thompson, who was Mr. Li's son-in-law, bought the shares of Mr. Li and other Chinese shareholders for $38.5 million, according to securities filings.
Mr. Thompson is the son of James E. Thompson, the founder a Hong Kong-based moving company called Crown Worldwide Group and a fixture in Hong Kong's civic life.
—Andrew Browne in Beijing contributed to this article. |
