News Column

A123 Battery Maker Picked up by Wanxiang

Dec. 10, 2012

Julie Wernau

Chinese firm Wanxiang emerged as the winning bidder of bankrupt battery-maker A123's assets in an auction that ended Saturday.

The sale of A123 Systems, which was awarded a $249 million federal grant and tens of millions in tax credits from Michigan, has been the subject of intense political debate, with military leaders and politicians arguing that U.S.-funded technology should not be transferred to a foreign company.

At the auction held in Chicago, Johnson Controls Inc. of Milwaukee and NEC Corp. of Japan teamed up in an unsuccessful effort to top the bid of Wanxiang Group Corp., a Chinese auto parts maker whose North American headquarters is in Elgin, said Charles Gassenheimer, president of Carnegie Hudson Resources Capital, a New York private equity firm and strategic adviser to Wanxiang.

Pin Ni, president of Wanxiang's U.S. arm, declined to comment on the deal.

A source close to the deal said the purchase price was about $250 million. Wanxiang excluded from the purchase A123's U.S. government and military contracts. The idea behind the exclusion was to blunt concerns raised by politicians and a military group that sensitive technology was slipping away from the U.S. and into foreign hands.

Another company, Navitas Systems, a spinoff of MicroSun Technologies, bought those assets, Gassenheimer said.

He said the bidding was close but ultimately Johnson Controls, in its offer, said it would be forced to cut jobs at the Livonia, Mich., factory that Massachusetts-based A123 operates. Half of the funding for that plant came from government grants. A123 also has facilities in China and Korea.

Wanxiang said it would not lay off workers, and Ni previously told the Tribune that his company would nurture A123, absorbing losses for five or 10 years if necessary.

A123's board met Saturday and was expected to approve the transaction. The Committee on Foreign Investment in the United States, a government body led by Treasury Secretary Timothy Geithner, must also approve the transaction.

The deal apparently ends a battle between Wanxiang and Johnson Controls for A123, which has yet to make a profit after going public in 2009.The company is one of several that set out to supply batteries to an emerging electric vehicle industry only to find that demand for the vehicles was sluggish. Earlier this year, some batteries the company was supplying to the luxury Fisker Karma electric vehicle were defective and resulted in an embarrassing flameout during a test by Consumer Reports.

Wanxiang had agreed to invest $450 million in A123 in August. A123 backed out of that deal, apparently over concerns that the Chinese firm would not garner the necessary government approvals, and filed for bankruptcy, then agreed to a new deal with Johnson Controls.

A judge ultimately decided that an auction would be more appropriate.

Johnson Controls, with a market cap of $19 billion, remained quiet throughout the court process, saying that if it were successful in its bid for A123 it would be "one of the last standing American companies competing in and building this U.S. advanced battery industry."

The Wanxiang purchase of A123 marks the second major foreign purchase of a U.S. battery company backed by Department of Energy funding. Gassenheimer, for instance, previously was chief executive of Ener1, a battery-maker with operations in Indiana that was snapped up in another bankruptcy by Boris Zingarevich, a Russian businessman who at one time was in business with Russian Prime Minister Dmitry Medvedev. Ener1's subsidiary, EnerDel, is a DOE grant recipient.

Global competition over battery technology has intensified despite the corporate bankruptcies. A little more than a week ago Energy Secretary Steven Chu announced in Chicago that the DOE would spend an additional $120 million to enhance battery technology at Argonne National Laboratory in Lemont.

"You have to be in this game," Chu told the Tribune when the announcement was made.

In fact, the hub is designed to build batteries that are five times more powerful at a fifth of the cost in five years using a strategy that has been compared to the Manhattan Project, which led to the atomic bomb.



Source: (c)2012 the Chicago Tribune Distributed by MCT Information Services


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