Wanxiang Wins Auction for A123 Systems, Leaving Shares with No Value

Andrew Klips  |

In a corporate statement on Sunday, A123 Systems Inc. (AONEQ) said that it has reached terms on an asset purchase agreement with Wanxiang America Corp. to sell virtually all of its assets for $256.6 million, following a court-sanctioned auction for the bankrupt lithium battery maker.

If approved by the necessary regulators, Wanxiang will get Massachusetts-based A123’s automotive, grid and commercial business assets, including all technology, products, customer contracts and U.S. facilities in Michigan, Massachusetts and Missouri; its cathode powder manufacturing operations in China; and its equity interest in Shanghai Advanced Traction Battery Systems Co., A123’s joint venture with Shanghai Automotive.

The transaction must garner the approval of not only the U.S. bankruptcy court, but also the Committee on Foreign Investment in the United States, a consortium led by the Treasury Department that reviews takeovers of U.S. companies. The finalization of the acquisition faces stiff headwinds from Capitol Hill. Republican Congress member and Vice Chairman of the House Energy and Commerce Committee Marsha Blackburn has voiced her opposition due to “significant implications” for our nation’s interests, according to her blog on The Hill website.

The sale does not include A123’s Ann Arbor, Michigan-based government business, including U.S. military contracts. Those assets are slated to be sold to Navitas Systems, a small, Illinois-based provider of energy products for commercial, industrial and government agency customers, for $2.25 million.

Selling the government-based business to Navatas is meant to be a solution to a raft of concerns voiced by many, including politicians and retired military leaders, about possibly transferring sensitive military technologies to China.

“We think we have structured this transaction to address potential national security concerns expressed during the review of our previous investment agreement with Wanxiang announced in August as well as to address concerns raised by the Department of Energy,” said Dave Vieau, Chief Executive Officer of A123, in Sunday’s statement.

The sale to Wanxiang has also been heavily scrutinized as irresponsible use of U.S. taxpayers’ dollars. A123 was the recipient of $249 million in stimulus funds through the American Recovery and Reinvestment Act (ARRA), although it’s notable that the company had drawn-down a large portion of the government loan.

Wanxiang America is a division of Wanxiang Group, a non-state-owned business and China’s largest automotive components company. In business since 1994, Chicago-based Wanxiang America employs more than 3,000 people in the U.S.

Wanxiang had been in pursuit of A123 throughout 2012 after it provided emergency funding to the embattled battery maker. With the terms agreed upon between Wanxiang and A123, the Chinese firm appears to have successfully shoved Johnson Controls, Inc. (JCI) out of the picture. JCI offered $125 million to buy the automotive assets of A123 as well as provide much-needed cash for bankruptcy reorganization to A123 in October. Wanxiang contested that it had already made a better offer for A123, effectively squashing a deal between JCI and A123.

The acquisition attempt is another in a series of moves by Chinese companies looking to expand their ownership in North American-based companies. Last week, Canada's lawmakers approved a $15.1-billion bid by China's state-owned CNOOC Ltd. (CEO) to buy energy giant Nexen Inc. (NXY), a deal that was mired in controversy.

The former darling of the lithium battery industry traded as high as $28.20 after a 2009 initial public offering, but followed those peaks with an onslaught of chronic debt problems, a share plummet and a bankruptcy filing in October 2012. Shares closed Friday at 6.9 cents each.

A123’s chief executive Vieau may have called that auction process “robust and competitive,” but remaining stakeholders may not share his sentiment. The total transaction price is not enough to cover debts to creditors, leaving shares worthless.

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