The former chairman of a Chinese mining equipment firm bought by Caterpillar Incorporated said on Monday he was dismayed by allegations of accounting misconduct at a subsidiary that prompted the United States firm to take a $580m writedown.
Emory Williams Jr. said Caterpillar had conducted extensive due diligence before its takeover of Hong Kong-listed ERA Mining Machinery Limited last June, adding that he was seeking further details from the company, the world’s largest maker of tractors and excavators, according to a Reuters report.
“We were shocked and dismayed to learn, from press reports, about the very significant goodwill impairment that Caterpillar is taking in relation to the acquisition of ERA’s subsidiary Siwei,” Emory Williams Jr said in a statement.
Caterpillar said on January 18 that it would write off most of the $654 it paid for ERA after uncovering “deliberate, multi-year, coordinated accounting misconduct” at its subsidiary Zhengzhou Siwei.
“We cooperated very closely with the Caterpillar team during their extensive due diligence,” Williams said, adding that he and John Lee — the English name used by fellow ERA director Li Rubo — had taken the company’s fiduciary and reporting responsibilities very seriously prior to its acquisition.
No-one from Caterpillar was immediately available for comment.
Caterpillar is due to report earnings in the United States later on Monday, with the Siwei writedown expected to wipe out more than half its earnings for the fourth quarter of 2012.
Williams is a Beijing-based US businessman. He is a former chairman of the American Chamber of Commerce in China and the son of a former Sears Bank and Trust Co. chairman and chief executive.
Li, his long-time business associate, is a graduate of the South Dakota School of Mines and a former Chinese government official.
Monday’s statement was the first comment by any of ERA’s former directors or major shareholders since Caterpillar’s statement 10 days ago.
ERA had absorbed Siwei through a reverse takeover in 2010, a corporate maneuver that has become controversial in the United States following a series of accounting scandals involving small Chinese companies listed there.
Announcing the writedown, Caterpillar said an internal investigation had uncovered improper accounting of inventories, revenue recognition and cost allocation at Siwei, designed to overstate the profitability of the business in the years before it bought it.
Williams said the former ERA directors had contacted Caterpillar senior management last week to ask for further details.
“To date we have received no response and are now taking advice on how best to respond to the situation in a manner which is constructive for all parties involved,” he said.
“We are absolutely committed to providing a comprehensive response to any information Caterpillar shares with us.”