Caterpillars wise to avoid China

I enjoyed reading the entertaining tale of how Caterpillar bought into Chinese firm ERA Mining Machinery in June last year but has just discovered - oops! - that subsidiary Siwei is worth, in essence, nothing. They are taking a $580m write-off from a $653m total investment. That's got to sting. It seems that Siwei's actual inventory and presented accounts may not have been in complete agreement.

Of course, it's easy to be wise after the event. However the story from Caterpillar makes one wonder how hard it would have been to be wise before the event too:

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.
I'm not making this up. So a $650m acquisition didn't warrant actual attention to the company being acquired. Wow. I wish I had that much money to burn on a whim. Caterpillar's 2012 Q3 results show a quarterly profit of $1.7bn on revenues of $16bn, so the write-off could be a little under 10% of annual profit - not company-ending, but surely nothing to sneeze at.

Whenever I see a major Western industrial nation blowing its trumpet about a big investment in China, I have to wonder when the other shoe is going to drop. Looks like it didn't take long in the case of Caterpillar.

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