Chinese Back in the Picture to Buy Bankrupt A123 Systems

A123 logoIs it back to China for Obama-boosted battery maker A123 Systems?

In August the Massachusetts stimulus recipient (more than $279 million, plus a bundle of other government contracts) announced that Wanxiang Group would infuse the failing company with quick cash as part of a plan to assume as much as 80-percent ownership. A barrage of questions and concerns followed – most prominently from Republican Sens. Charles Grassley (Iowa) and John Thune (South Dakota) – about the logistics of the deal, the potential relocation of taxpayer-funded jobs overseas, and the protection of U.S.-financed technology. Required approval by both the Chinese and U.S. governments seemed to be a high hurdle.

That, in addition to stipulations such as A123 keeping all its government goodies and maintaining its listing on the NASDAQ, appeared to be too much to see the deal through. So when the company declared bankruptcy on October 16, A123 announced it had a new American suitor, Johnson Controls. The plan was for Johnson to purchase the “automotive business assets” of A123 for $125 million, and that A123 would receive from Johnson $72.5 million in “debtor in possession” financing to continue operating during the sale process.

Now a few parties – including Wanxiang – have decided they don’t like that deal. Fisker Automotive, itself a recipient of a $529 million loan guarantee award from the Recovery Act before the Department of Energy halted payouts, wanted A123’s bankruptcy auction delayed. The two companies’ fortunes have been tied closely as Fisker was the battery maker’s top automotive customer, and A123 had an investment stake that it has begun to write down on its books as the values of both declined sharply this year. Fisker said it would challenge the debtor-in-possession loan from Johnson Controls, and according to Bloomberg News, the automaker opposes protections for Johnson Controls ‘that are unnecessary, excessive, and counterproductive to a successful sales process,’ including a possible $7.75 million breakup fee.

According to the Wall Street Journal, Wanxiang Group will now serve as the debtor-in-possession financer instead of Johnson. The newspaper reported that Wanxiang’s loan cuts the interest rate to 12 percent, from the 15 percent that Johnson extended. Johnson willingly stepped aside as DIP because, as the Milwaukee Business Journal reported from a company statement, “We are concerned that back-and-forth posturing by other interested parties may lead to confusion and anxiety for A123’s employees and customers and thus destroy underlying value in the estate.”

Still, the Wall Street Journal said a bidding war for A123’s assets is developing between the two companies. So there seems to be at least a competition to pick over the carcass that is A123. While CEO David Vieau and his top lieutenants hope the bankruptcy court will allow them to make off with over $4 million in bonuses and payouts for their massive failure, Johnson and Wanxiang will fight (how hard?) to get whatever’s left of value on the cheap.

What’s clearly left is a huge mess created by the Obama administration’s venture capital “investments” in green energy, the costs of which go far beyond the simple grants and loans from taxpayers. All the manpower required from (failed) bureaucratic analysis of grant applications and un-due diligence, to the now-necessary court labor that must sort it out, to the Congressional investigators who now have to get to the bottom of what went wrong, will add millions of dollars more to the cost of government’s involvement.

Remember, this was all launched in the name of energy efficiency to prevent global warming. The planet’s not heating up, but you can’t credit lousy deals like this for that.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes, an aggregator of North Carolina news.