Cat Settles Chinese Mining Deal

May 17, 2013

Caterpillar and ERA Mining Machinery Ltd. (MML) have resolved all outstanding issues following Caterpillar’s acquisition of the company. The acquisition included ERA’s wholly-owned subsidiary Zhengzhou Siwei Mechanical & Electrical Manufacturing Co. Ltd.

Caterpillar reached this agreement with two former directors of ERA, Emory Williams and John Lee, and two other parties with an interest in the settlement, Mining Machinery Limited and James Thompson III.

Caterpillar’s obligations related to the company’s acquisition of ERA were reduced by $135 million, from $164.5 million to $29.5 million. Additionally, Caterpillar and the MML parties have mutually released all their claims relating to the acquisition of ERA.

“We are pleased to resolve these issues with the MML parties, which, as we move forward, will position Caterpillar to put greater focus on improving the Siwei operation,” said Steve Wunning, Caterpillar group president with responsibility for Resource Industries. “We purchased Siwei as a strategic fit for our coal mining business in China, a country that produces and consumes more coal than any other country in the world,” Wunning added. “We remain very committed to supporting the large base of customers in the Chinese mining industry. With the broadest product line and outstanding dealer support, we are well positioned for long-term growth in this important market,” Wunning added.

In November 2011, Caterpillar and ERA announced a pre-conditional voluntary offer by Caterpillar, through a wholly-owned subsidiary, for all of the issued shares of ERA, which at that time was a publicly traded company on the Hong Kong Stock Exchange. In June 2012, Caterpillar announced the completion of its tender offer for ERA.

On Jan. 18, 2013, Caterpillar announced that an internal investigation had uncovered deliberate, multi-year, coordinated accounting misconduct at Siwei leading to a non-cash goodwill impairment charge. Caterpillar’s investigation determined that certain Siwei senior managers, one of whom was an ERA director, had engaged in this misconduct and, as a result, Caterpillar removed those responsible. Caterpillar found no evidence that the other former ERA directors or James Thompson III engaged in the accounting misconduct. The settlement concludes the dispute resolution process invoked by Caterpillar.

In addition to entering into the settlement agreement, Caterpillar has agreed that a company affiliated with the MML Parties may purchase from Siwei certain receivables and other assets.