A123 Systems Inc. (AONE), the maker of lithium batteries, rose 6.4 percent after signing a $450 million non-binding financing agreement with Wanxiang Group Corp., China’s largest auto-components company.
A123 advanced to 50 cents at the close. The stock has declined 69 percent this year as the costs of a recall of batteries for plug-in hybrid luxury carmaker Fisker Automotive Inc. prompted unprofitable A123 to say it needed to adjust its fundraising.
Wanxiang would give A123 as much as $75 million in debt financing under the proposed terms of the agreement, the Waltham, Massachusetts-based battery maker said in a statement. Wanxiang may also buy $200 million of senior secured convertible notes and invest $175 million by exercising warrants. It may help A123 secure existing customers and win over new ones, said David Epstein, an analyst with CRT Capital Group.
“If you’re trying to win business or get an existing customer to expand a program, it’s going to be a lot easier,” Epstein said in a telephone interview. “Because switching costs are high, an existing customer is going to be a lot more comfortable going with you and building a product around your product if they think you’re going to be around for the long haul.”
Under the deal’s terms, the shares issuable upon exercise and conversion of the warrants and the convertible notes would represent about 80 percent of the then outstanding common stock of A123.
“Today’s announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123’s financial situation,” Chief Executive Officer David Vieau said in the statement. It will also provide access to customers in China, he said.
A123 also said today that second-quarter revenue fell 53 percent to $17 million from $36.4 million in the same period last year. The net loss widened to $82.9 million from $55.4 million. The Wanxiang agreement will provide stability as A123 progresses toward its profitability targets, including achieving positive adjusted earnings before interest, taxes, depreciation and amortization on a quarterly basis during 2013, Vieau said on a conference call today.
“I’m not so comfortable that they can predict or any one can predict what the numbers are going to look like,” Epstein said.
The company said in March it would need to “adjust” its fundraising plans because of the $55 million cost of recalling Fisker Karma battery packs that have misaligned hose clamps.
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