Caterpillar got two profit warnings and bought anyway. Then came $580M.
In 2011 Caterpillar offered to buy ERA Mining Machinery to ride China's coal boom. ERA issued two profit warnings; Caterpillar pushed forward. It then found accounting misconduct at Siwei and took a $580 million impairment.
Transcript
Before Caterpillar closed its bet on China's coal boom, the target issued two profit warnings.
In November 2011, Caterpillar offered to buy ERA Mining Machinery, and with it the mining-equipment maker Siwei. After the warnings, Caterpillar flew ERA's executives to Peoria to explain them, and pushed forward.
Caterpillar paid about 5.06 billion Hong Kong dollars, roughly $653 million, completing the tender in June 2012.
Then it found deliberate, multi-year, coordinated accounting misconduct at Siwei. Caterpillar took a non-cash goodwill impairment of about $580 million.
The option Caterpillar gave up was the simplest one: walk away. When a target warns twice before closing, treat the warnings as data about the books, not just the market.
The records behind this video
Every figure in the video comes from this Decision Record, each with its sources.
Run this decision
The Market Entry Strategy Pack. “How fast can this actually be done?” The framework, a model, a deck and the sourced cases, for running the same call on your own business. See the pack, $499 → Or start with the free guide to this decision →
