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A123 Wins Court Approval to Sell Assets to Wanxiang

Wanxiang Wins U.S. Court Approval to Buy Most of A123’s Assets
Workers operate machinery on the vehicle battery assembly area of Wanxiang Group's electric automobile division in Hangzhou, Zhejiang province, China. Photographer: Qilai Shen/Bloomberg

Wanxiang Group Co. won court approval to buy most of the assets of A123 Systems Inc., the failed electric-car battery maker backed with U.S. government funds, for about $256.6 million.

U.S. Bankruptcy Judge Kevin Carey approved the sale, which has raised concern from some Republican lawmakers, at a hearing yesterday in Wilmington, Delaware, saying “the auction was robust, the price is adequate.” The deal is still subject to review by the Committee on Foreign Investment in the U.S.

CFIUS, as it is known, is a federal interagency group led by the Treasury Department that reviews mergers and acquisitions for national-security concerns when a takeover may give a foreign owner control of a U.S. company.

Wanxiang, China’s biggest auto-parts maker, will acquire substantially all of A123’s assets including its automotive, grid and commercial business. A123 also received approval to sell its government business to Woodridge, Illinois-based Navitas Systems LLC for about $2.25 million.

“Given the fact that we more than double where we were at the beginning of the auction I think everyone was pleased,” A123’s lawyer, D.J. “Jan” Baker, told Carey at the hearing.

Federal Grant

A123, which was awarded a federal grant of as much as $249.1 million, held an auction last week where Wanxiang beat a joint bid from Milwaukee-based Johnson Controls Inc. and Tokyo-based NEC Corp.

Johnson Controls, the lead bidder for the auction with a $125 million offer for the auto business, drew criticism from the unsecured creditors’ committee, which claimed the jilted bidder was attempting to undermine the sale.

“We have learned that lobbyists have been engaged” by Johnson Controls to persuade CFIUS to reject the acquisition, said William Baldiga, a lawyer for the creditors’ committee. The creditors asked Carey to set aside a $5.5 million payment Johnson Controls was set to receive for being outbid at the auction and its auction-related expenses.

“I’m troubled by the suggestion that someone who participated in the auction may already be working against the sale,” Carey told lawyers before approving the creditors’ committee’s request.

Johnson Controls

An attorney for Johnson Controls, Joshua Feltman, told Carey he wasn’t aware of any attempts by his client to thwart the deal. He said that members of Congress preferred that Johnson buy the assets, and the company shouldn’t be punished for siding with the Michigan delegation.

The $5.5 million will be put into escrow until the committee completes its investigation or CFIUS approves the sale to Wanxiang.

The initial 30-day period of CFIUS’s review will end tomorrow, which will be followed by a 45-day investigation, according to Malcolm Tuesley, a lawyer hired by A123 on CFIUS matters.

Baldiga and A123 financial adviser Joe Miller with Lazard Freres & Co. said it’s very likely that CFIUS will approve the sale.

U.S. Trust

Wanxiang, based in Hangzhou, China, will set up a U.S.- based trust that would control the purchased assets if it hasn’t received either approval or rejection from CFIUS before Jan. 15, according to court papers. If it receives approval, the assets will then vest in the company. If it doesn’t, the trust will hold the assets until Wanxiang can dispose of them.

A123 will get the proceeds from the $256.6 million sale to disburse to creditors regardless of the outcome.

Wanxiang’s purchase will give it A123’s cathode powder plant in China and its share of a joint venture with Shanghai Automotive Industry Corp., called Shanghai Advanced Traction Battery Systems Co., in addition to the battery technology used in Fisker Automotive Inc.’s Karma sedan.

Fisker, A123’s main customer, said it was awaiting the sale of the company’s Michigan plant so it could resume production of the $103,000 plug-in Karma sedan.

Car Batteries

A123, whose automotive business supplies electric-car batteries to about a dozen customers, has facilities in the Michigan cities of Livonia and Romulus.

The grid business focuses on energy generation, transmission and distribution while the commercial division develops products for industries such as telecommunications, industrial robotics and power tools, according to court papers. A123 works with the government on portable power solutions, unmanned aerial vehicles, pulsed power weapons as well as small energy cells for remote devices.

The Waltham, Massachusetts-based battery maker filed for bankruptcy in October after a previous deal with Wanxiang was scuttled amid congressional Republicans’ reluctance to allow its sale to a Chinese company.

“Given the important national security interests at stake, we expect a full review of the bankruptcy transaction by the Treasury Department,” U.S. Senator John Thune, a Republican from South Dakota, said Dec. 10 in a joint statement with fellow Republican Charles Grassley of Iowa.

A123 listed assets of $459.8 million and debt of $376 million as of Aug. 31 in court documents.

The case is In re A123 Systems Inc., 12-12859, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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