Wanxiang Takes Control Of A123. Again. As It Wins Bankruptcy Auction

1 year ago by Jay Cole 17

Unfortunate Photo Bombing Of The President By A123 CEO David Vieau (middle)Four months ago to the day (August 8th, 2012) A123 and Wanxiang agreed to a deal that would save the US battery maker, but have the Chinese part giant take over 80% for a total commitment of about $450 million dollars.  A123 is the battery provided to the Fisker Karma and upcoming Chevrolet Spark EV.

Will A123 Prismatic Battery Modules For The Fisker Karma Return To Production? Who Knows?

Two months ago, A123 thought it could do better by not fufilling its obligations to Wanxiang and allowing itself to go bankrupt and tying itself to Johnson Controls in a $125 million dollar sale of its automotive assets and battery plants in Michigan.

A123 thought this (Chapter 11) would also be a good opportunity to break its battery supply contract with Fisker at the same time.

On breaking the deal with Wanxiang, David Vieau, CEO of A123 said, “We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion.  Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets”

Unfortunately for CEO Vieau and A123, the Chapter 11 process is an open process and anyone who so chooses (after they have been approved to bid) can buy up assets by simply putting down the most money.

Now for $260 million, Wianxiang gets 100% control of the company, free of debts for $200 million less.  On a personal note, and a former shareholder, I’d like to be the first to say, nice job David Vieau.

It was Timothy Pohl of Lazard Freres who first reported Wanxiang Group Corp’s bid of about $260 million bested a joint bid from Johnson Controls and NEC Corp (of Nissan LEAF battery fame) for A123.

CEO Vieau In Happier Times

Reportedly, the only part of A123 the Chinese part maker did not acquire (quite likely because they chose to not bid on it to avoid a political entanglement) was A123′s work that involved the U.S. Defense Department.  That part of the company went to an undisclosed bidder.

The sale looks to be ratified Tuesday by U.S. Bankruptcy Judge Kevin Carey.

Because of A123′s billion dollar+ relationship with Detroit motors (GM and Ford), and its decision to avoid the more sensitive parts of A123′s business, the deal is expected to go through despite some protest from US politicians like U.S. Rep. Bill Huizenga (R-Mich) who has already issued a statement.

“Given the thin line between Wanxiang and the Chinese government, I am concerned about the government of China having access to sensitive technologies being used by our military forces.”

Wanxiang will now assume control of battery production for the upcoming Chevrolet Spark EV, and General Motor’s has already said it does not foresee any supply issues on its upcoming mini all-electric car due out in the summer of 2013.

It is still unknown when (or if) Wanxiang will seek to continue its relationship with Fisker, as that company has been forced to shutdown production of their luxury extended range Karma for over a month while A123 has been going through the bankruptcy process.  Wanxiang may elect to also ask the bankruptcy judge to void that contract under a Chapter 11 clause that allows companies to void “below market conditions”.<

On completuing the deal, Pin Ni, president of Wanxiang America said:

“We believe that A123’s industry-leading technology for vehicle electrification, grid energy storage and other industries complements Wanxiang’s strong R&D and manufacturing capabilities, so we think adding A123 to our portfolio of businesses strongly aligns with our strategy of investing in the automotive and cleantech industries in the US.

We plan to build on the engineering and manufacturing capabilities that A123 has established in the US and we are committed to making the long-term investments necessary for A123 to be successful.”

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17 responses to "Wanxiang Takes Control Of A123. Again. As It Wins Bankruptcy Auction"

  1. Dave R says:

    “I’d like to be the first to say, nice job David Vieau”

    I sense some sarcasm there. Pretty impressive how upper management ran such a promising company into the ground. I’m sure all the executives got their golden parachutes, though.

  2. Bill Howland says:

    Agreed…

    Hopefully Jay you didn’t have a huge sum invested in those Leap’s… You never know when the pencil pusher dudes are going to be working against you. I smell the tinge of a Rat here, I wonder if you do too Jay, although you may not want to talk about it due to its sensitive nature. All that taxpayer money gone, too, or should I say, “but of course!”. But its been covered between the lines on these blog sites by others.

    1. Jay Cole says:

      Heya Bill, no not a lot invested there, it was mostly for trading amusement as everything else for the past 3-4 years has been fairly boring. I moved out of a equity position when the stock bounced a little (low $1+ area as I recall), then into a LEAP (jan ’13) later to have less of a commitment but the same amount of exposure.

      When I first I got into A123, I mentioned that it was really a spin of the wheel and for no one to seriously invest based on what I do, because stuff like this only pays off 1 in 5 times, but you hope that the 5th pick does so well that it bests the 4 that went under. A123 ended up one of the other 4, lol. It happens.

      As for the tax payer money being gone, I guess it depends on how you look at it. The grant was for plants in Michigan, which still exist and will now resume production. We certainly know how it will play out in the wider media.

      Details on loan:
      http://ir.a123systems.com/releasedetail.cfm?ReleaseID=403090

      According to the court A123 still has 120 million of the 249 grant that it can draw down on (its a you spend a dollar building and we give you a dollar set-up), and that Wanxiang can still take advantage of that…unles the US government withdraws it.

      1. GeorgeS says:

        Jay so what does this mean for the A123 plant in Michigan.

        Hopefully e don’t have now TWO US battery plants sitting idol.

        This whole thing stinks. Our govmn’t needs to take some action and force the mfg to be here in the US…….

        PS thx for the weekend read.

        1. Jay Cole says:

          My understanding (and by no means is 100% written in stone right now) is that from the last deal that Wanxiang would continue the supply agreement with GM as A123 had it set up. So from a plant utilization point of view, this was probably best case.

          Its not like Wanxiang is some random unknown Chinese company coming in out of no where…although the adjective ‘Chinese’ always seems to set off a very specific emotion. Wanxiang-GM is already a very (very) large OEM-supplier type partnership.

          PS) We work weekends, but not Christmas…so don’t bother checking us out on the 25th. Probably pretty sketchy for a story on the 1st of January too, (=

          1. backstroke says:

            Wanxiang owning these plants makes little or no sense to me and I wonder if they are included? If so, then I expect them to be sold off at some stage, sooner rather than later once an alternative is established, or existing plant expanded.

            With the Karma assembled in Finland, and the Spark EV to be assembled in South Korea, having a US based battery manufacturing plant makes zero logistical sense.

            Only reason they might continue is if they do get more government funding.

          2. GeorgeS says:

            Jay, well I guess that’s as positive picture that can be painted. but looks to me we need to get ONE of these plants going. It’s almost like the guvm’nt should just decree that all Volt batteries and all A123 batts get made at one plant and we get this thing fired up. Too bad also we could not throw in Leaf and then we would have a production line that could save some money!!

            1. Open-Mind says:

              “…the guvm’nt should just decree that all Volt batteries and all A123 batts get made at one plant and we get this thing fired up.”

              How is that not Fascism? I’m referencing this definition:

              http://www.econlib.org/library/Enc/Fascism.html

              “Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners.”

  3. Stuart22 says:

    Free enterprise is a synonym of self-flagellation.

  4. Herm says:

    It would have been nice if the $7500 tax credit had been contingent on the manufacturer using US made batteries.. but it may not be legally possible. It would have changed GMs decision to use LG in the Volt.

  5. shawn marshall says:

    A123 could not be profitable. The market is not there. The batteries are not good enough yet and who knows if they ever will be. It’s dollars and sense that must rule and wishful thinking or politicians “planning” an economy won’t force it to work despite the dictatorial aspirations of many of your respondents.

    It’s all about the batteries.

    Where is the sweet spot? 150-200 miles of range in a $20k BEV? Until the industry can approach that, companies like A123 are going to be swimming upstream.

    One thing savvy real estate developers know is that when banks put up a lot of money to fund somebody’s pipe dream of a wonderful development, when it goes bust and gets sold off for cents on the dollar, the captured equity forfeited by the banks may make the development succeed because lots can be sold at lower prices. If A123 battery costs are capital intensive, the bankruptcy should make their batteries profitable at a lower price. Investors have eaten the start up costs. That’s the bright side. I’ve seen some RE developments go through several bankruptcies before the lucky guy buys it cheap enough to make a go of it. Essentially he gets it for a little bit of nothing. That’s where the wise guys are.

    1. Open-Mind says:

      The market is not there? People said the same about Apple in the late 90′s. Bad CEOs took them to near bankruptcy, then one good CEO made it the largest company in the world.

      Never underestimate the destructive power of bad management.

    2. Herm says:

      a 200 mile BEV for $20k Obama dollars??.. impossible, but if done then you would complain the car is a stripped econobox.

      1. shawn marshall says:

        Apparently you’ve never seen my ride.

        EVs have to compete against high mileage cars that cost $15k and less.

        The market will develop when average folks can see the cost benefit right away – cost competitive AND operating savings.

        I’m a 40 year EV fan, drove my first EV in the 1980s(at work) but I don’t have my head in the sand.

    3. Bonaire says:

      A123 had good chemistry and the cells were fine. It was the company that failed, not their cell technology. Top-heavy expensive HQ, with expensive executives and lack of sales at a reasonable price (cells and systems were priced higher than the competition per kWh).

      They won the auction at a price far less than they were bidding early on as an outright buyer. This is the kind of crazy management antics that went on at A123. Poor execution by management who acted like the company was under university tenure and not a true business.

      1. shawn marshall says:

        I wonder if a couple hundred million in misspent taxpayer funds influenced them to behave that way, or another meaning of you get what you pay for.

  6. Bill says:

    Great! Another example of American business ineptitude and selling out to the Chinese. How long before the Chinese buy, steal, or copy all our technology?