March 3 Caterpillar Inc's shares were
flat in premarket trading on Friday, suggesting investors had
put aside the company's tax risk as old news, a day after
federal law enforcement officials searched three of its
The company's shares closed down 4.3 percent at $94.36 on
Thursday, wiping out $2.47 billion of market value. The stock
was down 0.5 percent at $93.90 in trading before the bell on
Caterpillar said on Thursday it believed the search was part
of an Internal Revenue Service investigation related to profits
earned by a Swiss parts subsidiary, Caterpillar SARL, or
Chief Executive Officer Jim Umpleby, in a statement to
employees that was seen by newspaper Peoria Star, said he was
surprised by the turn of events and that management did not have
enough information to provide a full understanding of the
authorities' intent. (bit.ly/2lGON73)
"This morning, a number of our colleagues in the Peoria area
were surprised when federal authorities arrived to execute a
search warrant. I'm sorry that we had to experience this today,"
he said in the statement on Thursday.
The apparent escalation of the government's tax dispute with
Caterpillar comes amid Trump administration's promise to reform
corporate taxes and design a system that encourages companies to
keep jobs and profits within the United States.
Caterpillar is currently contesting an Internal Revenue
Service demand that it pay $2 billion in taxes and penalties for
profits assigned to the subsidiary between 2007 and 2012.
Morningstar analyst Keith Schoonmaker said that
Caterpillar's current exposure could rise to $3 billion, since
the company has continued to file tax returns on the same basis.
"We suspect the core of the matter is not "new" news, but
rather that it relates to the risk already disclosed in 2014-16
10-Ks," said Schoonmaker, who lowered his fair value estimate on
the stock to $64 from $67.
(Reporting by Narottam Medhora in Bengaluru; Editing by