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Wanxiang Beats Johnson in A123 Bid

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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 (SI - Analyst Report) 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.
 

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