A123 Sells Bulk of Company to Wanxiang, Feds Must Approve

12/10/12Follow @curtwoodward

A123 Systems, the bankrupt advanced-battery company bankrolled in part by federal stimulus money, has agreed to sell its commercial business to China’s largest auto-parts manufacturer.

But the twisted saga of the former cleantech poster child is not over—the U.S. federal government must still approve the transaction, a potentially big political hurdle.

Following a four-day private auction that stretched into Sunday afternoon, A123 says it reached the deal to sell the bulk of its business to Wanxiang America Corp. for nearly $257 million. That deal would cover all of A123′s automotive and electric grid business, including facilities in Massachusetts, Michigan, and Missouri.

Wanxiang had been intensely pursuing A123 for months, including a failed rescue bid to invest in the company as it reeled from production problems and declining orders from its biggest customer, luxury electric car maker Fisker Automotive.

After Wanxiang’s investment failed to close in time, reportedly because of political concerns about having a Chinese firm take over a company with U.S. financial support and military contracts, A123 filed for Chapter 11 bankruptcy in October.

Another company, Milwaukee-based Johnson Controls, had been designated the official opening bidder ahead of the auction with a $125 million bid. But Wanxiang was never out of the picture, winning court approval to bankroll a bridge loan that kept A123 operating during the federal bankruptcy proceedings.

“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,” Wanxiang America president Pin Ni said in a news release.

The deal has to be approved by the federal bankruptcy judge, but there are even bigger government players still interested in this sale. And the political residue of the federal stimulus act, along with national security worries about Chinese ownership, could complicate the transaction.

First is the federal Energy Department’s contention that matching grants awarded to A123 give the government a lingering interest in the factories built with that money. A123 was awarded the grant, worth up to nearly $250 million, in 2009 to help boost its advanced battery production. A123 ended up getting about $130 million of that total.

A123 and its major creditors disagree with the agency’s contention that it has some sort of say in the sale of the company, an issue that will have to be hashed out in bankruptcy court.

Perhaps more thorny for the deal’s future is the approval of a federal body called the Committee on Foreign Investment in the United States, an executive branch group that reviews the national security implications of deals that could result in a foreign party taking control of a U.S. business.

The deal to split A123′s assets appears designed to soothe any worries about the company’s military and government branches by splitting those units off into a smaller chunk. Those pieces of A123, based in Ann Arbor, MI, would be sold for $2.25 million to Navitas Systems, a Woodridge, IL-based company.

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

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