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Chinese Company May Still Pursue A123 After Bankruptcy

October 17, 2012

Chinese Company May Still Pursue A123 After Bankruptcy Filing

Machines are used to fabricate batteries at the A123 Systems lithium ion automotive battery manufacturing plant in Livonia, Michigan. A123, the recipient of a $249 million federal grant, said that it scrapped the previous agreement with Wanxiang as it filed for bankruptcy protection and agreed to sell its automotive business assets to Johnson Controls. Photographer: Jeffrey Sauger/Bloomberg

The Chinese auto-parts maker that previously bailed out A123 Systems Inc. (AONE:US), the U.S. electric-car battery maker that filed for bankruptcy protection this week, said it’s still interested in taking over the company.

The bankruptcy filing may turn A123 into a more attractive investment because the court proceedings would clear out legal risks, Ni Pin, president of Wanxiang Group Corp.’s U.S. operations, said in a phone interview yesterday. The automotive business assets that A123 announced this week it would sell to Johnson Controls Inc. (JCI:US) are separate from what Wanxiang had targeted, Ni said.

“Bankruptcy court is like a filter that lets a dirty big boy covered with mud go through it and turn himself into a clean boy,” Ni said. “Even though the boy may become smaller, he doesn’t have the obligations he used to have.”

A123, the recipient of a $249 million federal grant, said that it scrapped the previous agreement with Wanxiang as it filed for bankruptcy protection and agreed to sell its automotive business assets to Johnson Controls. The Chinese company, the nation’s biggest auto-parts maker, earlier this year agreed to provide A123 with as much as $465 million in loans and bonds convertible into an 80 percent stake.

Wanxiang’s deal was structured to protect itself against A123’s potential bankruptcy, Ni said. Still, the court proceedings may result in Wanxiang facing competing suitors, which may drive up the cost of A123, he said.

The Johnson Controls deal doesn’t clash with Wanxiang because the Chinese company is interested in all of A123, not part of its assets, Ni said.

Targeting China

The earlier deal between the Chinese company and A123, announced in August, had drawn opposition from Waltham, Massachusetts-based Representative Cliff Stearns, a Florida Republican, who cited possible national security concerns.

Ni said Wanxiang hasn’t faced any U.S. regulatory opposition and that the company may have drawn attacks from politicians because the deal came during an election year.

“In a two-party system, they have to figure out an enemy and China is the easiest one to target,” Ni said. “This is just the reality.”

The bankruptcy filing gave Republican Mitt Romney fresh ammunition to criticize President Barack Obama’s record on the economy.

“A123’s bankruptcy is yet another failure for the president’s disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work,” Andrea Saul, a Romney campaign spokeswoman, said in an e-mailed statement this week.

‘Orderly Sale’

Federal grants and loans to companies including A123, Fisker Automotive Inc. and Tesla Motors Inc. (TSLA:US) have drawn scrutiny from congressional Republicans following the September 2011 bankruptcy filing of solar-panel maker Solyndra LLC two years after it received a $535 million loan guarantee from the U.S. Energy Department.

For A123, this week’s move may pave the way for an “orderly sale” of the company, it said in a statement. Johnson Controls plans to acquire A123’s automotive-business assets in a deal valued at $125 million and will provide financing of $72.5 million to support A123’s operations, according to the release.

The company listed assets of $459.8 million and debt of $376 million as of Aug. 31 in Chapter 11 documents filed in U.S. Bankruptcy Court in Wilmington, Delaware.

Financial Lifeline

A123 needed a financial lifeline after struggling with costs from a recall of batteries supplied to Fisker, the plug-in hybrid luxury carmaker. Temporary relief came in August, when the company announced a non-binding agreement with Wanxiang.

A123 Chief Executive Officer David Vieau said in this week’s statement that the company scrapped its deal with the Chinese company because of “unanticipated and significant challenges to its completion.”

Johnson Controls plans to acquire A123’s automotive business assets, including its facilities in Livonia and Romulus, Michigan. The Milwaukee-based company also will obtain A123’s cathode powder plant in China and its equity interest in Shanghai Advanced Traction Battery Systems Co., A123’s joint venture with Shanghai Automotive Industry Corp.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net; Dawn McCarty in Wilmington at dmccarty@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net; John Pickering at jpickering@bloomberg.net


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