(Adds commerce secretary comment, background on CEO, updates
March 3 Caterpillar Inc's shares gained
on Friday, the day after U.S. law enforcement officials raided
three of the company's Illinois facilities, as the Trump
administration promised stricter scrutiny of multinationals'
import and export practices.
U.S. Secretary of Commerce Wilbur Ross said on Friday that
the raids at the heavy equipment manufacturer were part of an
"The Commerce Department has enforcement responsibilities
both on imports and on exports, so it's an important part of our
function," Ross said on CNBC. "We're going to be even stricter
on enforcement, particularly on inbound goods that shouldn't
One of the locations raided, in Morton, Illinois, is the
central point for receiving and shipping after-market parts
worldwide, according to Caterpillar's website.
The company's shares, part of the Dow Jones Industrial
Average, were up 0.8 percent at $95.12 in morning
trading. They had fallen 4.3 percent on Thursday, wiping out
about $2.5 billion of market value and dragging on U.S.
Chief Executive Officer Jim Umpleby said in a statement to
employees seen by newspaper Peoria Star 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," the Thursday statement said. "I'm sorry that we
had to experience this today."
The scrutiny of the huge multinational company's tax
practices is an early test of Umpleby, who took over as CEO at
the start of the year.
In January, Caterpillar said it would move about 300 senior
executives and staff to Chicago, starting this year. The company
cited recruiting and access to global transportation as factors
in the decision.
The apparent escalation of the government's tax dispute with
Caterpillar comes amid the 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 said it believed the search was part of an
Internal Revenue Service investigation of profits earned by
Swiss parts subsidiary Caterpillar SARL, or CSARL.
That subsidiary was the subject of a 2014 Senate committee
report that concluded Caterpillar shifted billions in profits
abroad and had deferred or avoided paying $2.4 billion in taxes
from 2012. The report criticized Caterpillar's accountants,
PricewaterhouseCoopers, saying its dual roles as auditor and tax
consultant represented a conflict of interest.
Caterpillar is 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.
Caterpillar's current exposure could rise to $3 billion
since the company has continued to file tax returns on the same
basis, Morningstar analyst Keith Schoonmaker said.
"We suspect the core of the matter is not 'new' news, but
rather that it relates to the risk already disclosed in
2014-16," said Schoonmaker, who lowered his fair value estimate
on the stock to $64 from $67.
(Reporting by Narottam Medhora in Bengaluru; Writing by Nick
Zieminski; Editing by Sayantani Ghosh and Lisa Von Ahn)