A123 Goes on the Auction Block: Here’s How It Got This Bad

12/6/12Follow @curtwoodward

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late last month, the company was the subject of at least three lawsuits—two in federal court and one in Massachusetts state court—alleging that A123 had been inaccurate or misleading in the way it publicly disclosed the problems with its batteries.

Search for Suitors
With all of those problems as a backdrop, A123 needed cash. In court filings, the company says it came close in February and March of this year, negotiating “definitive agreements with respect to a significant equity investment from a strategic investor.” But that unnamed investor walked away, and A123 went back on the hunt.

An “extensive marketing process searching for potential partners and equity investors as well as entities interested in acquiring some or all of [A123’s] assets” followed, with the company’s agent contacting some 74 parties. Twenty-four of those prospects asked for more information, and 11 went further by conducting confidential due diligence.

The field continued to narrow. “Seven parties visited A123 facilities and received management presentations. Ultimately, however, only one offer … was received to invest in [A123] as a going concern,” the company reports in court documents. It was from Wanxiang Group Corp., a major Chinese auto-parts manufacturer.

Hitting a Wall
The Wanxiang investment may have appeared to be a life-saver. But the deal, worth potentially $465 million to A123, involved several stages—and there were hiccups along the way, according to A123’s court filings.

The company was able to get ahold of an advance of $12.5 million and a letter of credit worth $10 million. But subsequent infusions of cash were tied to closing conditions, some of which had thorny international political implications—notably, approval of the Chinese and American governments.

As of the mid-October bankruptcy filing, “certain of the aforementioned conditions had not been satisfied,” and the rest of the investment and loan package from Wanxiang never arrived, A123 says.

What Now?
Wanxiang is still in the picture, having loaned A123 some $50 million to help finance operations during the bankruptcy period. Wisconsin-based Johnson Controls is the opening bidder ahead of Thursday’s auction, having put together a $125 million proposal for A123’s automotive business.

Wanxiang is still very interested in the company, but it faces political resistance—some members of Congress question the strategic sense of having a foreign-owned company take control of A123, despite the fact that Wanxiang has operated a U.S.-based subsidiary for years.

And the Energy Department has made clear in court filings that its heavy grant funding of A123—about $130 million of the $250 million grant had been spent—leaves the federal government with a say in any sale that comes out of the bankruptcy process.

This one is far from over.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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  • http://www.facebook.com/marchick Adam Marchick

    Great write up, thanks for posting!

  • Tom Campbell

    Here’s a nutty thought. Let actual investors put their money in rather than taxpayers. The government is not good at picking winners. Investors are slightly better, and come with the distinct advantage of not requiring that taxpayers foot the bill.

    • curtwoodward

      A123 did have private investors, including GE, and was a public company after all. The DOE stimulus grants were mostly intended to help build a factory in Michigan – the one where problems cropped up, it turns out. So it was publicly and privately backed.

      • GeneralEmergency

        If A123 was in fact a viable concern, then no DOE grant was needed for factory construction. If the DOE grant -was- needed to build a factory, then A123 was -not- a going concern. See how easy that is when you think clearly?

  • darth

    Tom is wrong, the government has done much better than the private sector in picking winners. DOE grants have a very high rate of return.

    See: http://thinkprogress.org/climate/2012/10/16/1020991/clean-energy-highest-rate-of-return-any-federal-program/