Chinese Firm to Purchase Bankrupt Battery Maker A123 Systems

 

A123 Systems Purchased by Wanxiang America

Wanxiang America, the US subsidiary of the Wanxiang Group Corporation, a Chinese auto parts conglomerate, won an auction conducted by the US Bankruptcy Court to purchase the bankrupt battery maker A123 Systems Incorporated for $256.6 million.

Before the deal can be finalized it will first need to be approved in court at a hearing scheduled for Tuesday, December 11. Permission will also be needed by a federal inter-agency committee, the Committee for Foreign Investment in the United States, which reviews the purchase of US companies by foreign owners. A123 has about 2,000 employees.

A123 is based in Waltham, Massachusetts, and produces lithium ion batteries for electric cars, grid storage, and commercial and military applications. In 2009 the Department of Energy awarded the company a $249 million grant to help build factories. Unfortunately the poor economy depressed the market for electric cars, having an adverse effect on A123 after about half of the grant had already been delivered.

In September 2009, only about a month after the grant was awarded A123 had a successful initial public offering. The IPO raised $380 million for the company as its stock increased in value by about 50 percent, closing over $20 per share. At the trading session before A123 filed for bankruptcy protection on October 16, 2012 the company was trading at 13 cents.

The government focused aspect of A123’s business will be sold separately to a US-based company, Navitas Systems of Woodridge, Illinois, for $2.25 million.

“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 A123 CEO Dave Vieau. “We believe this transaction balances those risks with A123’s obligation to act in the best interest of our creditors.”

If the deals are finalized by the court then the company’s shares will have no value. This is because the value of A123’s sale to the two purchasers is actually less than what the company owes its creditors.

Wanxiang America is the Chicago-based subsidiary of the Wanxiang Group, China’s biggest car-parts maker and one of China’s largest private sector firms. Wanxiang has been in the US auto and industrial markets since 1994 and employees over 3,000 US workers.

“We plan to build on the engineering and manufacturing capabilities that A123 has established in the U.S. and we are committed to making the long-term investments necessary for A123 to be successful,” said Pin Ni, president of Wanxiang America.

About Michelle Grathers

Michelle Grathers is an international tax expert. She has consulted for a variety of firms and high net worth individuals on all tax- and legal-related issues. She also helps new companies develop payroll services, statutory audits and mergers and acquisitions. Contact Michelle at michelle[at]businessdistrict.com