Back to top

Analyst Blog

China’s auto parts conglomerate Wanxiang Group Corp. won the bid for assets of Waltham, Massachusetts based lithium-ion battery maker A123 Systems Inc., beating other suitors in the auction, including Johnson Controls Inc. (JCI - Analyst Report), Germany’s Siemens AG and Tokyo-based NEC Corp. The Chinese company has offered $256.6 million to A123.

Wanxiang bought A123’s automotive segment, energy-grid storage business, commercial business and U.S. government business. The sale includes two facilities located in Livonia and Romulus in Michigan.

However, it excluded latter’s government business based in Michigan. The Michigan-based business works with the U.S. Defense Department, which has been sold to Plymouth, Massachusetts-based Navitas Systems for $2.25 million.

Wanxiang may also get A123’s interest in a joint venture with China’s Shanghai Automotive Industry Corp. (SAIC). The business focuses on energy generation, transmission and distribution. It also develops products for telecommunications, industrial robotics and power tools industries.

A couple of months back, Wanxiang Group revealed that it will place a superior bid for A123 compared to what Johnson Control has offered ($125 million). In October, A123 and all of its U.S. subsidiaries have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court.

A123 had a tough time dealing with lower orders for Karma plug-in hybrid from its leading customer Fisker Automotive (which has generated 26% of the company’s revenues in 2011) in October last year and a costly recall of battery packs made for the same company this year.

A123 was also highly disappointed with its failed $465 million deal with Wanxiang. At the beginning, Wanxiang gave $22.5 million loan to A123, including a cash advance of $12.5 million.

Future cash flow from Wanxiang were dependent on meeting certain requirements by A123, such as getting approval from the Committee of Foreign Investment and the Chinese government as well as the absence of any default. However, A123 had failed to meet some of those conditions and the deal failed shortly before its bankruptcy filing.

Lastly, weaker-than-expected demand for hybrids had adversely affected the company’s bottom line. All these factors led to bankruptcy filing of the company that is only 11 years old.

A123 was entitled to receive $249 million grant from the U.S. Department of Energy (D.O.E.) under the $90 billion grant for several clean-energy programs in 2009. Till date, A123 has utilized $132 million of the D.O.E. grant, which is about half of the total amount. D.O.E. will decide on the remaining grant later after the new owner of A123 takes control.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%